2006 - Eu Yan Sang

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C O R P O R A T E G O V E R N A N C EThe Board of Eu Yan Sang International Limited (“the Board”) is committed to maintaining a highstandard of corporate governance to ensure greater transparency and to protect the interest of theCompany’s shareholders.This report describes the corporate governance principles applied by the Company with specificreference to the Code of Corporate Governance (“the Code”). References to the principles of the Codeare listed below:PRINCIPLE 1: BOARD’S CONDUCT OF AFFAIRSThe principal functions of the Board are:(1) to provide entrepreneurial leadership and approve the broad policies, strategies and financialobjectives of the Company and monitoring the performance of Management;(2) to ensure that the necessary financial and human resources are in place for the Company to meetits objectives;(3) to oversee the processes for evaluating the adequacy of internal controls, financial reporting andcompliance;(4) to approve the appointment of directors to the Board and the appointment of key personnel;(5) to approve annual budgets, major funding proposals, investment and divestment proposals;(6) to assume responsibility for corporate governance; and(7) to set the Company’s values and standards, and ensure that obligations to shareholders andothers are understood and met.Matters which are specifically referred to the Board for decision are those involving approval ofaccounts and results announcements, dividend payments or other returns to shareholders, corporateor financial restructuring and share issuance, material acquisitions and disposal of assets.The Board conducts regularly scheduled meetings on a quarterly basis. Ad-hoc meetings are convenedwhen circumstances require. The Company’s Articles of Association provide for meetings by meansof conference telephone. The attendance of the directors at meetings of the Board and Boardcommittees, and the frequency of these meetings for the financial year ended 30 June 2006 isdisclosed as follows.31

C O R P O R A T E G O V E R N A N C E (cont’d)Directors’ Attendance At Board & Committee MeetingsNameEu Yan SangBoardNo of No ofMtgs MtgsHeld Atten’dAuditCommitteeNo ofMtgsHeldNo ofMtgsAtten’dCompensationCommitteeNo of No ofMtgs MtgsHeld Atten’dNominatingCommitteeNo of No ofMtgs MtgsHeld Atten’dStrategicCommitteeNo ofMtgsHeldNo ofMtgsAtten’dJoseph William Yee Eu 4 3 - - - - 1 1 5 4Richard Yee Ming Eu 4 4 - - - - - - - -Clifford Yee Fong Eu 4 4 - - - - - - - -Dr Jennifer Gek Choo Lee 4 4 4 4 3 3 1 1 - -Ian Wayne Spence 4 4 4 4 3 3 1 1 - -Robert James Yee Sang Eu 4 4 - - 3 2 - - 5 5Malcolm Man Chung Au 4 4 4 4 - - - - 5 4David Chung Woo Yeh# 4 - 4 - - - - - 5 1Leslie Kim Loong Mah* 4 2 - - - - - - - -# David Chung Woo Yeh did not seek re-appointment during the AGM on 28.10.2005* Leslie Kim Loong Mah was appointed to the Board on 03.01.2006The Company provides facilities such as the conduct of internal courses for the directors to meet theirtraining needs. The new directors are also given orientation on the Group’s businesses. The Companyadopts a policy whereby directors are encouraged to request for further explanations, briefings orinformal discussions on the Company’s operations or business with the management.PRINCIPLE 2: BOARD COMPOSITION AND GUIDANCEThe Board currently has eight (8) directors, comprising three (3) independent, two (2) non-independentand non-executive directors and three (3) executive directors. Information regarding each Boardmember is provided under the Board of Directors section.The Board comprises directors who as a group provide core competencies such as accounting orfinance, business or management experience, industry knowledge and strategic planning experience.To assist in the execution of its responsibilities and to comply with the requirements, the Board hasestablished sub-committees: an Audit Committee, a Nominating Committee, a Strategic DirectionCommittee and a Compensation Committee, under which the Executives’ Share Option SchemeCommittee functions as a sub-committee. These committees function within clearly defined terms ofreference and operating procedures, which are reviewed on a regular basis. The effectiveness of eachcommittee is also constantly monitored.The Board’s structure, size and composition is reviewed annually by the Nominating Committee (“NC”).The NC is of the view that the current size of the Board is appropriate to facilitate effective decisionmaking, taking into account the nature and scope of the Group’s operations. As more than 1/3 rd ofthe Board is independent, the NC is satisfied that the Board has substantial independent elements toensure that objective judgment be exercised on corporate affairs.32

C O R P O R A T E G O V E R N A N C E (cont’d)PRINCIPLE 3: ROLE OF CHAIRMAN AND CHIEF EXECUTIVE OFFICERThe Company has a non-executive director serving as Chairman and an executive director serving asCEO. The CEO is the most senior executive in the Company and bears executive responsibility for theCompany’s business, while the Chairman bears responsibility for the workings of the Board. Thoughthe Chairman and the CEO are related, the relationship does not affect the division of responsibilitiesbetween the Chairman and the CEO.The Chairman ensures that board meetings are held when necessary and sets the board agenda inconsultation with the CEO. The Chairman reviews most board papers before they are submitted tothe Board and ensures that all Board members are provided with complete, adequate and timelyinformation. As a rule, board papers are sent to directors approximately seven days in advance fordirectors to be adequately prepared for the meetings.The CEO executes decisions taken by the Board and is responsible for the day-to-day operations ofthe Company. The CEO presides over a Management Committee (“MC”) consisting of the executivedirectors and Group General Managers. In setting the business direction of the Company, the MCconvenes meetings as and when necessary to review the Group’s operational performance and evaluatenew projects and investment opportunities. In line with good corporate governance principles, theBoard had also set up a Strategic Direction Committee, comprising one (1) non-executive independentdirector and two (2) non-executive non-independent directors. The primary role of this committee isto assist the CEO in setting the direction of the Group’s business as it has gone beyond the region tojoin the league of global business.PRINCIPLE 4: BOARD MEMBERSHIPPRINCIPLE 5: BOARD PERFORMANCENominating CommitteeThe members of the Nominating Committee (“NC”) are as follows:(1) Ian Wayne Spence (Chairman) (Independent)(2) Dr Jennifer Gek Choo Lee (Independent)(3) Joseph William Yee Eu (Non-Independent & Non-Executive)The Chairman is not, or is not directly associated with, a substantial shareholder.The NC’s principal functions are:(1) to identify candidates and review all nominations for the appointment or re-appointment ofmembers of the Board of Directors; the Chief Executive Officer of the Company; members of thevarious Board committees, for the purpose of proposing such nominations to the Board for itsapproval;(2) to set criteria for identifying candidates and reviewing nominations for the appointments referredto in paragraph 1;(3) to determine annually the independence of the directors. If the NC determines that a directoris independent, notwithstanding that he has one or more of the relationships (as set forth inGuidance Note 2.1 of the Code), it will disclose in full the nature of the director’s relationshipand bear responsibility for considering him independent;(4) to decide how the Board’s performance may be evaluated and propose objective performancecriteria for the Board’s approval;33

C O R P O R A T E G O V E R N A N C E (cont’d)(5) to decide whether a director is able to and has been adequately carrying out his or her duties asa director of the Company particularly when the director has multiple board representations;(6) to assess the effectiveness of the Board as a whole, and the contribution by each individualdirector to the effectiveness to the Board.New directors are at present appointed by the Board, after the NC approves their appointment. Suchnew directors are required to submit themselves for re-election at the next Annual General Meeting(“AGM”) of the Company pursuant to Article 92 of the Company’s Articles of Association. Article 109of the Articles of Association require one third of the Board (other than the Managing Director) toretire by rotation at every AGM.PRINCIPLE 6: ACCESS TO INFORMATIONIn order to ensure that the Board is able to fulfill its responsibilities, Management provides the Boardwith monthly financial reports and quarterly management reports. The directors have also been providedwith emails particulars and telephone numbers of the Company’s Group General Managers to facilitateaccess.The Company Secretary attends all board meetings and is responsible to ensure that the Companycomplies with the statutory requirements of the Companies Act. Together with the managementstaff, the Company Secretary is responsible for compliance with all other rules and regulations thatare applicable to the Company.In the furtherance of their duties, the directors may seek independent advice, if necessary, at theCompany’s expense.Changes to regulations and accounting standards are closely monitored by Management. Directors arebriefed either during Board meetings or by the Company Secretary of these changes especially wherethese changes have an important bearing on the Company’s or directors’ disclosure obligations.34PRINCIPLE 7: PROCEDURES FOR DEVELOPING REMUNERATION POLICIESPRINCIPLE 8: LEVEL AND MIX OF REMUNERATIONPRINCIPLE 9: DISCLOSURE ON REMUNERATIONThe members of the Compensation Committee (“CC”) are as follows:(1) Dr Jennifer Gek Choo Lee (Chairman) (Independent)(2) Ian Wayne Spence (Independent)(3) Robert James Yee Sang Eu (Non-Executive) (Non-Independent)CC’s principal responsibilities are to review the annual remuneration package of the executive directorsand fees for Board members. The review covers all aspects of remuneration, including but not limitedto directors’ fees, salaries, bonuses and benefits in kind based on the performance of the Group andthe individual. The recommendations are submitted to the Board for endorsement.The review of the remuneration of each senior management staff of the Group is not conducted by theCC but reviewed by the Group’s human resources department, in consultation with the CEO and thesenior management. The review takes into consideration the performance and the contributions of thestaff to the company and gives due regard to the financial and business performance of that company.The Group seeks to offer a competitive level of remuneration to attract, motivate and retain seniormanagement of the required competency to run the Group successfully.

C O R P O R A T E G O V E R N A N C E (cont’d)The Company adopts a remuneration policy that comprises a fixed as well as a variable component. Thefixed component is in a form of base salary and benefits while the variable component is in a form ofperformance bonus and grant of share options under the Company’s Executives’ Share Option Scheme(“ESOS”).A sub-committee under the purview of the CC administers the ESOS and comprises:(1) Dr Jennifer Gek Choo Lee(2) Ian Wayne Spence(3) Robert James Yee Sang Eu(4) Richard Yee Ming EuMore details on the ESOS are provided in the Directors’ Report.An executive director is paid a basic salary and a performance related bonus. Adjustments to theremuneration package of an executive director are subject to review and approval by the Boardof Directors. Under the terms of the agreement, the Chairman is paid a flat fee and there is noperformance-related element. Non-executive directors have no service contracts.(1) Table shows breakdown of Directors’ Remuneration (in percentage terms)Name of DirectorsRemunerationDirectors OtherBands Salary Bonus Fee Benefits* Total$ % % % % %Richard Yee Ming Eu 250,000 to 499,999 76 21 0 3 100Clifford Yee Fong Eu 250,000 to 499,999 74 23 0 3 100Leslie Kim Loong Mah 0 to 249,999 97 0 0 3 100Joseph William Yee Eu 0 to 249,999 - - 100 - 100Robert James Yee Sang Eu 0 to 249,999 - - 100 - 100Dr Jennifer Gek Choo Lee 0 to 249,999 - - 100 - 100David Chung Woo Yeh 0 to 249,999 - - 100 - 100Ian Wayne Spence 0 to 249,999 - - 100 - 100Malcolm Man Chung Au 0 to 249,999 - - 100 - 100* excluding share options which are disclosed in Directors’ Report(2) Table shows the range of gross remuneration received by executives of the GroupNumber of executives of the Group in remuneration bands 2006$250,000 to $499,999 6$100,000 to $249,999 23Total 2935

C O R P O R A T E G O V E R N A N C E (cont’d)PRINCIPLE 10: ACCOUNTABILITYPRINCIPLE 14: COMMUNICATION WITH SHAREHOLDERSPRINCIPLE 15: GREATER SHAREHOLDER PARTICIPATIONThe Company holds briefings for the media and the analysts on its half-year and its full-year results. Theresults announcements are released through the SGXNET system and via news releases, and are alsoposted on the Company’s website. All material information relating to the Company is disseminated viaSGXNET followed by a news release. All announcements, including the Annual Report, are available onthe Group’s website at www.euyansang.comThe Company has an investor relations team headed by the Chief Executive Officer and assisted by theChief Financial Officer whose function is to communicate with investors and attend to their queries.Shareholders of the Company receive the annual report and notice of AGM. At AGMs, shareholdersare given the opportunity to ask the Management questions regarding the Company and to air theirviews.PRINCIPLE 11: AUDIT COMMITTEEThe Audit Committee (“AC”) comprises four (4) independent directors. They are as follows:(1) Ian Wayne Spence (Chairman) (Independent)(2) Dr Jennifer Gek Choo Lee (Independent)(3) Malcolm Man Chung Au (Independent)(4) David Chung Woo Yeh# (Independent)# David Chung Woo Yeh did not seek re-appointment during the AGM on 28.10.2005During the year, the AC met with the Group’s external auditors and the internal auditors to reviewthe audit plans and the reports of the external auditors and internal auditors. It had also evaluatedthe adequacy of the internal controls of the Company with the auditors and discussed their findingswith Management. The AC reviewed the quarterly (Q1, half year & Q3), half-year and full-year resultsannouncements before their submission to the Board for approval.The principal functions of the AC are:(1) to review the audit plans and findings of the external auditors;(2) to review the quarterly (Q1, half year & Q3), half-yearly and full year results announcement toensure integrity of the financial statements and announcements prior to submission to theBoard for approval and release;(3) to evaluate the adequacy of the internal control systems of the Company by reviewing thewritten reports from the external auditors;(4) to review the Company’s risk management processes;(5) to review related party transactions, if any;(6) to review the scope and results of the audit and its cost effectiveness, and the independenceand objectivity of the external auditors annually; and(7) to recommend to the Board on the appointment, re-appointment and removal of the externalauditor and approving the remuneration and terms of engagement of the external auditor.36

C O R P O R A T E G O V E R N A N C E (cont’d)To create an environment for open discussion on audit matters, the AC meets with the external andinternal auditors, without the presence of Management, at least once a year.The AC has reviewed the non-audit services provided by the external auditors for FY2006 and issatisfied that such services would not affect the independence of the external auditors. Accordingly,it has recommended the re-appointment of Messrs Ernst & Young as Auditors of the Company at theforthcoming Annual General Meeting.The AC is authorized to investigate any matter within its terms of reference and has been given fullaccess to and cooperation from Management to enable the committee to fulfill its responsibilitieseffectively. The AC has full discretion to invite any director or any executive to attend its meetings.PRINCIPLE 12: INTERNAL CONTROLSPRINCIPLE 13: INTERNAL AUDITSThe Company has outsourced its Internal Audit (“IA”) function. The scope of the internal audit is:(1) to review the effectiveness of the Group’s material internal controls;(2) to provide assurance that key business and operational risks are identified and managed;(3) to determine that internal controls are in place and functioning as intended; and(4) to evaluate that operations are conducted in an effective and efficient manner.Material non-compliance and internal control weaknesses noted during the internal audit and therecommendations thereof are reported to the Chairman of the AC as part of the review of the Group’sinternal control system. For non-compliance of administrative matters, the matter is reported to theCEO. The AC reviews the Internal Auditor’s reports. To ensure the effectiveness and adequacy of theinternal audit function, the AC reviews the Internal Auditor’s scope of work on an annual basis.Securities TransactionsThe Company has issued a policy on securities dealing by officers of the Company and its subsidiaries(comprising directors and key personnel) in the form of a Code of Best Practices on Securities Dealings(“the Code”) to govern and regulate transactions relating to securities of the Company. The Codewas based on the Best Practices Guide issued by the SGX-ST and has been circulated to all relevantparties.Under the Code, officers are prohibited from dealing in securities of the Company on short termconsiderations and at least four (4) weeks before the announcements of the Company’s results till theday after the release of such announcements.Material ContractsThere were no material contracts of the Company or its subsidiaries involving the interests of anydirectors or controlling shareholders subsisting as at the financial year ended 30 June 2006.37

F I N A N C I A L S T A T E M E N T SC O N T E N T SDirectors’ Report 39Statement by Directors 44Auditors’ Report 45Consolidated Profit and Loss Account 46Balance Sheets 47Consolidated Statement of Changes in Equity 48Consolidated Statement of Cashflow 50Notes to the Financial Statements 52Shareholders’ Information 113Notice of Annual General Meeting 116Proxy Form38

D i r e c t o r s ’ r e p o r tThe Directors are pleased to present their report to the members together with the audited consolidatedfinancial statements of Eu Yan Sang International Ltd (the “Company”) and its subsidiaries (collectively,the “Group”) and the balance sheet of the Company for the financial year ended 30 June 2006.DirectorsThe Directors of the Company in office at the date of this report are :-Joseph William Yee EuRichard Yee Ming EuClifford Yee Fong EuLeslie Kim Loong MahRobert James Yee Sang EuIan Wayne SpenceDr Jennifer Gek Choo LeeMalcolm Man-Chung AuDr David Yee Tat EuLaurence Yee Lye EuBilly Wah Yan Ma(Chairman)(Group CEO)(Managing Director)(Executive Director)(alternate to Richard Yee Ming Eu)(alternate to Clifford Yee Fong Eu)(alternate to Robert James Yee Sang Eu)Arrangements to enable directors to acquire shares and debenturesExcept as described below, neither at the end of, nor at any time during the financial year was theCompany a party to any arrangement whose objects are, or one of whose object is, to enable theDirectors of the Company to acquire benefits by means of the acquisition of shares or debentures ofthe Company or any other body corporate.39

D i r e c t o r s ’ r e p o r t (cont’d)Directors’ interests in shares and debenturesThe following Directors, who held office at the end of the financial year had, according to the registerof the Directors’ shareholdings required to be kept under Section 164 of the Singapore CompaniesAct, Cap. 50, an interest in shares and share options of the Company, (other than wholly ownedsubsidiaries) as stated below :-Direct interestDeemed interestAt 1.7.2005/ At 1.7.2005/date ofdate ofName of director appointment At 30.6.2006 appointment At 30.6.2006The CompanyOrdinary sharesJoseph William Yee Eu 10,859,964 12,574,955 – –Richard Yee Ming Eu – – 42,436,115 52,945,143Clifford Yee Fong Eu 5,752,595 7,190,743 65,991,414 78,739,267Robert James Yee Sang Eu – – 21,970,828 27,463,535Dr Jennifer Gek Choo Lee 100,000 125,000 – –Dr David Yee Tat Eu 9,619,045 11,523,806 – –Laurence Yee Lye Eu – 1,875,000 59,491,414 68,739,267Billy Wah Yan Ma – – 24,949,686 31,187,107Options to subscribe for ordinary sharesRichard Yee Ming Eu 200,000 530,000 – –Clifford Yee Fong Eu 180,000 475,000 – –Leslie Kim Loong Mah 362,500 362,500 – –There were no change in any of the above-mentioned interest between the end of the financial year and21 July 2006.Except as disclosed in this report, no Directors who held office at the end of the financial year hadan interest in shares, share options or debentures of the Company, or any of the subsidiaries of theCompany at the beginning of the financial year, or at the end of the financial year.By virtue of Section 7 of the Singapore Companies Act, Cap. 50, Clifford Yee Fong Eu and Laurence YeeLye Eu are deemed to have interest in the subsidiaries of the Company.Directors’ contractual benefitsExcept as disclosed in the financial statements, since the end of the previous financial year, no Directorof the Company has received or become entitled to receive a benefit by reason of a contract madeby the Company or a related corporation with the Director, or with a firm of which the Director is amember, or with a Company in which the Director has a substantial financial interest.40

D i r e c t o r s ’ r e p o r t (cont’d)Audit CommitteeThe Audit Committee comprises three independent non-executive directors. The members of the AuditCommittee at the date of this report are :Ian Wayne SpenceDr Jennifer Gek Choo LeeMalcolm Man-Chung Au(Chairman)The Audit Committee (“AC”) carried out its functions in accordance with Section 201B(5) of theSingapore Companies Act, Cap. 50, including the following:• Reviews the audit plans of the internal and external auditors of the Company and ensures theadequacy of the Company’s system of accounting controls and the co-operation given by theCompany’s management to the external and internal auditors;• Reviews the quarterly and annual financial statements and the auditors’ report on the annualfinancial statements of the Company before their submission to the board of directors;• Reviews effectiveness of the Company’s material internal controls, including financial, operationaland compliance controls and risk management via reviews carried out by the internal auditors;• Meets with the external auditors, other committees, and management in separate executivesessions to discuss any matters that these Groups believe should be discussed privately withthe AC;• Reviews legal and regulatory matters that may have a material impact on the financial statements,related compliance policies and programmes and any reports received from regulators;• Reviews the cost effectiveness and the independence and objectivity of the external auditors;• Reviews the nature and extent of non-audit services provided by the external auditors;• Recommends to the board of directors the external auditors to be nominated, approves thecompensation of the external auditors, and reviews the scope and results of the audit;• Reports actions and minutes of the AC to the board of directors with such recommendations asthe AC considers appropriate; and• Reviews interested person transactions in accordance with the requirements of the SingaporeExchange Securities Trading Limited (“SGX-ST”)’s Listing Manual.The AC, having reviewed all non-audit services provided by the external auditors to the Group, issatisfied that the nature and extent of such services would not affect the independence of the externalauditors. The AC has also conducted a review of interested person transactions.The AC convened four meetings during the year with full attendance from all members, except for onewhere a member was absent. The AC has also met with internal and external auditors, without thepresence of the Company’s management, at least once a year.Further details regarding the audit committee are disclosed in the Report on Corporate Governance.41

D i r e c t o r s ’ r e p o r t (cont’d)Employees Share Option SchemeThe Eu Yan Sang Employees Share Option Scheme (“ESOS”) was approved by the shareholders at anExtraordinary General Meeting held on 3 July 2000. The ESOS will be granted to executive directors,executives, and other employees of the Group and associated companies.Under the ESOS, the options will be granted at the average of the last dealt prices for the shares onthe SGX-ST for the 10 consecutive market days immediately preceding the relevant date of grant forwhich there was trading in the shares on the SGX-ST or at a discount of not more than 20% of themarket value.On 20 September 2002, the ESOS committee amended the rules of the ESOS whereby options to begranted to Directors may be higher than the average of the last dealt prices for the shares on theSGX-ST for the 10 consecutive market days immediately preceding the relevant date of grant for whichthere is trading in the shares on the SGX-ST.The ESOS is administered by a committee comprising Richard Yee Ming Eu, Dr Jennifer Gek Choo Lee,Ian Wayne Spence and Robert James Yee Sang Eu, all of whom are Directors of the Company. Thecommittee has power to determine, inter alia, the persons to be granted options, the number of sharesto be offered by way of options, the amount of discount or premium to be given and recommendationsfor modifications to the ESOS. The Committee, in granting options, shall be at liberty to take intoconsideration factors including, but not limited to, rank and performance of the employees.During the current financial year, the Company granted 3,745,000 share options to executive directors,executives and other employees of the Group to subscribe for 3,745,000 shares in the Company at asubscription price of $0.534 per share pursuant to the ESOS.Unissued shares under option1,883,750 shares under ESOS were issued by virtue of an exercise of option to take up unissuedshares of the Company.At the end of the financial year, unissued shares of the Company under option were as follows :Date of grantNumber of shareoptions outstandingExercise priceper share$Exercisable periods18.3.2002 – 0.224 18.3.2003 to 17.3.201231.3.2003 475,000 0.280 31.3.2004 to 30.3.201331.3.2003 412,500 0.212 31.3.2004 to 30.3.201315.12.2005 3,745,000 0.534 15.12.2006 to 14.12.20154,632,50042

D i r e c t o r s ’ r e p o r t (cont’d)The information on directors participating in the ESOS and employees who receive 5 percent or moreof the total number of options available under the ESOS is as follows :Unissued shares under option (cont’d)NameAggregateoptions grantedduring thefinancial yearAggregateoptionsgranted sincecommencementof the Schemeto30 June 2006Aggregateoptionsexercised sincecommencementof the Schemeto30 June 2006Aggregateoptionsoutstandingas at 30 June2006DirectorsRichard Yee Ming Eu 280,000 530,000 – 530,000Clifford Yee Fong Eu 250,000 475,000 – 475,000Leslie Kim Loong Mah 200,000 362,500 – 362,500EmployeesAlice Suet Ying Wong 200,000 510,000 (310,000) 200,000Eng Hock Lok 200,000 450,000 (250,000)200,0001,130,000 2,327,500 (560,000)1,767,500AuditorsErnst & Young have expressed their willingness to accept reappointment as auditors.On behalf of the Board of Directors:Richard Yee Ming EuDirectorClifford Yee Fong EuDirectorSingapore15 September 200643

S t a t e m e n t b y D i r e c t o r sWe, Richard Yee Ming Eu and Clifford Yee Fong Eu, being two of the Directors of Eu Yan Sang InternationalLtd (the “Company”), do hereby state that, in the opinion of the Directors :(i)(ii)the accompanying balance sheets, consolidated profit and loss account, consolidated statementof changes in equity and consolidated cash flow statement together with notes thereto, aredrawn up so as to give a true and fair view of the state of affairs of the Company and of theGroup as at 30 June 2006 and the results, changes in equity and cash flows of the Group forthe year ended on that date, andat the date of this statement, there are reasonable grounds to believe that the Company will beable to pay its debts as and when they fall due.On behalf of the Board of Directors:Richard Yee Ming EuDirectorClifford Yee Fong EuDirectorSingapore15 September 200644

A u d i t o r s ’ R e p o r t to the Members of Eu Yan Sang International LtdWe have audited the accompanying financial statements of Eu Yan Sang International Ltd (the “Company”)and its subsidiaries (collectively, the “Group”) set out on pages 46 to 112 for the financial year ended30 June 2006. These financial statements are the responsibility of the Company’s directors. Ourresponsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with Singapore Standards on Auditing. Those Standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by the Directors, as well as evaluatingthe overall financial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.In our opinion,(a)(b)the consolidated financial statements of the Group and the balance sheet of the Company areproperly drawn up in accordance with the provisions of the Singapore Companies Act, Cap. 50(the “Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of thestate of affairs of the Group and of the Company as at 30 June 2006 and the results, changesin equity and cash flows of the Group for the year ended on that date; andthe accounting and other records required by the Act to be kept by the Company and by thosesubsidiaries incorporated in Singapore of which we are the auditors have been properly kept inaccordance with the provisions of the Act.ERNST & YOUNGCertified Public AccountantsSingapore15 September 200645

C o n s o l i d a t e d P r o f i t a n d L o s s A c c o u n tfor the year ended 30 June 2006(In Singapore dollars)CONTINUING OPERATIONSNote 2006$’0002005$’000(Restated)Revenue 3 173,447 159,612Cost of sales (85,489) (80,177)Gross profit 87,958 79,435Other operating income 3,726 787Distribution and selling expenses (53,234) (46,404)Administrative expenses (18,368) (15,844)Other operating expenses (85) (480)Operating profit 4 19,997 17,494Foreign exchange gain 126 –Foreign exchange loss (1,465) (164)Interest income 5 202 44Interest expense 6 (940) (699)Impairment of goodwill (376) (1,501)Impairment loss on investment in an associatedcompany – (51)(Deficit)/surplus on revaluation of land and buildings (8) 391Share of associated companies’ profit/(losses) 2 (9)Profit from continuing operations before taxation 17,538 15,505Tax expense 7 (4,008) (3,958)Profit from continuing operations after taxation 13,530 11,547DISCONTINUED OPERATIONProfit from discontinued operation 8 891 862Profit for the year 14,421 12,409Attributable to :Equity holders of the Company 14,431 12,438Minority interest (10) (29)14,421 12,409Earnings per share (cents) 10- Basic - continuing operations 3.76 3.23- Basic - discontinued operation 0.25 0.24- Diluted - continuing operations 3.75 3.23- Diluted - discontinued operation 0.25 0.2446The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

B a l a n c e S h e e t sas at 30 June 2006(In Singapore dollars)Note 2006$’000Group2005$’0002006$’000Company2005$’000Non-current assetsProperty, plant and equipment 11 51,697 39,502 887 897Investments in subsidiaries 12 – – 21,965 23,965Amount due from subsidiaries 21 – – 12,777 10,171Investments in associated companies 13 – – – –Long term investments 14 1,678 3 – –Investment properties 15 6,035 8,670 – –Goodwill 16 624 656 – –Intangible assets 17 263 233 – –Deferred tax assets 26 259 – – –60,556 49,064 35,629 35,033Current assetsInventories 18 33,301 31,155 – –Trade receivables 19 7,203 8,941 – –Other receivables 20 8,131 6,484 153 138Amounts due from subsidiaries 21 – – 32,664 29,189Fixed bank deposits 31 8,650 3,634 – –Cash and bank balances 31 8,070 9,418 377 58665,355 59,632 33,194 29,913Current liabilitiesInterest bearing loans and borrowings 22 21,363 11,474 18,670 7,890Trade payables 23 9,662 9,409 – –Other payables 23 9,251 7,867 1,416 694Hire purchase creditors 24 213 213 120 95Tax payable 3,880 3,925 19 8344,369 32,888 20,225 8,762Net current assets 20,986 26,744 12,969 21,151Non-current liabilitiesInterest bearing loans and borrowings 22 – 7,000 – 7,000Long term loans from minorityshareholders of subsidiaries 25 183 376 – –Hire purchase creditors 24 622 664 446 391Deferred tax liabilities 27 1,464 908 18 18Provision for long service payments 85 89 – –(2,354) (9,037) (464) (7,409)79,188 66,771 48,134 48,775Equity attributable to equityholders of the CompanyShare capital 28 34,872 14,330 34,872 14,330Reserves 29 44,316 52,429 13,262 34,44579,188 66,759 48,134 48,775Minority interest – 12 – –Total equity 79,188 66,771 48,134 48,775The accompanying accounting policies and explanatory notes form an integral part of the financial statements.47

C o n s o l i d a t e d S t a t e m e n t o f C h a n g e s i n E q u i t yfor the year ended 30 June 2006(In Singapore dollars)Attributable to equity holders of the CompanyForeignAssetShare currenciesShare Share revaluation Capital options translation RevenueMinority Totalcapital premium reserve reserve reserve reserve reserve Total interests equity$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000At 1 July 2005 14,330 20,098 3,152 453 – (3,422) 32,148 66,759 12 66,771Effect of adopting FRS39 – – – – – – 120 120 – 120Shares issued pursuantto the exercise of shareoptions 132 312 – – – – – 444 – 444Grant of share options toemployees – – – – 99 – – 99 – 99Bonus issue 3,591 (3,591) – – – – – – – –Surplus on revaluation ofland and buildings – – 4,106 – – – – 4,106 – 4,106Transfer from sharepremium to sharecapital * 16,819 (16,819) – – – – – – – –Effect of exchangedifferences – – – – – (1,025) – (1,025) – (1,025)Net income recogniseddirectly in equity – – – – – – – – (2) (2)Profit for the year – – – – – – 14,431 14,431 (10) 14,421Dividends, net (Note 9) – – – – – – (5,746) (5,746) – (5,746)At 30 June 2006 34,872 – 7,258 453 99 (4,447) 40,953 79,188 – 79,18848

C o n s o l i d a t e d S t a t e m e n t o f C h a n g e s i n E q u i t y (cont’d)for the year ended 30 June 2006(In Singapore dollars)Attributable to equity holders of the CompanyForeignShare ShareAssetrevaluationcurrenciesCapital translation RevenueMinority Totalcapital premium reserve reserve reserve reserve Total interests equity$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000At 1 July 2004 14,284 19,897 3,596 453 (2,554) 22,112 57,788 – 57,788Shares issued pursuant to theexercise of share options 46 201 – – – – 247 – 247Surplus on revaluation of landand buildings – – 725 – – – 725 – 725Disposal of revalued land andbuildings – – (1,169) – – 1,169 – – –Effect of exchange differences – – – – (868) – (868) – (868)Net income recognised directlyin equity – – – – – – – 41 41Profit for the year – – – – – 12,438 12,438 (29) 12,409Dividends, net (Note 9) – – – – – (3,571) (3,571) – (3,571)At 30 June 2005 14,330 20,098 3,152 453 (3,422) 32,148 66,759 12 66,771* With effect from 30 January 2006, the concepts of “par value” and “authorised capital” were abolishedunder the Companies (Amendment) Act 2005 and the amount standing to the credit of the Company’sshare premium account as at 30 January 2006 became part of the Company’s share capital as at thatdate.The accompanying accounting policies and explanatory notes form an integral part of the financial statements.49

C o n s o l i d a t e d S t a t e m e n t o f C a s h F l o wfor the year ended 30 June 2006(In Singapore dollars)2006 2005$’000 $’000Cash flows from operating activities :Operating profit before taxation and minority interest- from continued operations 17,538 15,505- from discontinued operations 1,040 955Adjustments for :Depreciation of property, plant and equipment 6,372 5,908Profit on sale of property, plant and equipment (58) (364)Gain on disposal of a subsidiary (3,141) –Foreign currency translation adjustments (1,337) (370)Property, plant and equipment written off 11 246Intangible assets written off – 52Interest expense 940 699Interest income (202) (50)Share-based payments 99 –Share of associated companies’ (profit)/losses (2) 9Amortisation of other intangible assets 19 35Impairment of goodwill 376 1,501Deficit/(surplus) on revaluation of land and buildings 8 (391)Impairment loss on investment in an associated company – 51Operating income before reinvestment in working capital 21,663 23,786Increase in receivables (786) (3,173)Increase in payables 4,880 4,829Increase in inventories (3,215) (9,793)Increase in intangible assets (31) (40)Cash generated from operations 22,511 15,609Interest received 202 50Interest paid (940) (699)Income taxes paid (4,338) (2,812)Net cash provided by operating activities 17,435 12,148Cash flows from investing activities :Proceeds from sale of property, plant and equipment 1,260 2,411Purchase of property, plant and equipment (15,423) (12,636)Proceeds from disposal of investment in unquoted shares of acompany – 44Acquisition of additional interests in subsidiaries (363) –Acquisition of investment in unquoted share of a company (1,675) –Net cash inflow on disposal of a subsidiary company (note 12) 5,100 –Net cash used in investing activities (11,101) (10,181)50

C o n s o l i d a t e d S t a t e m e n t o f C a s h F l o w (cont’d)for the year ended 30 June 2006(In Singapore dollars)2006 2005$’000 $’000Cash flows from financing activities :Proceeds from short-term loans 8,731 3,540Repayment of bank loan (5,842) (1,000)Dividends paid (5,746) (3,571)Proceeds from hire purchase creditors 11 115Payment of hire purchase creditors (53) –Proceeds from share options exercised 444 247Proceeds from long term loans from minority shareholders ofsubsidiaries 183 143Repayment of long term loan from minority shareholders ofsubsidiaries (376) –Net cash used in financing activities (2,648) (526)Net increase in cash and cash equivalents 3,686 1,441Cash and cash equivalents at beginning of the year 13,034 11,593Cash and cash equivalents at end of the year (note 31) 16,720 13,034The accompanying accounting policies and explanatory notes form an integral part of the financial statements.51

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s30 June 2006(In Singapore dollars)1. Corporate informationEu Yan Sang International Ltd (the “Company”) is a limited liability company which is incorporatedin Singapore. The Company’s registration number is 199302179H. The registered office andprincipal place of business of Eu Yan Sang International Ltd is located at 269A South BridgeRoad, Singapore 058818.The principal activities of the Company are investment holding and the provision of managementservices to its subsidiaries. The principal activities of the subsidiaries are :(1) manufacturing, distribution and sale of traditional Chinese, Western and other medicines;(2) act as commission agents for all kinds of pharmaceutical products;(3) provision of traditional Chinese medical consultation and treatment, as well as integrativemedical services;(4) provision of laboratory testing services; and(5) investment in properties.As disclosed in Note 8, the Group disposed of Synco (H.K.) Limited, a wholly-owned subsidiarywhich was reported in the Prescription/OTC division previously, in an effort to concentrate onthe Group’s principal activities.2. Summary of significant accounting policies2.1 Basis of preparationThe consolidated financial statements of the Group and the balance sheet of the Company havebeen prepared in accordance with Singapore Financial Reporting Standards (“FRS”).The financial statements have been prepared on a historical cost basis except for certainland and buildings, investment properties and available-for-sale financial assets that have beenmeasured at their fair values.The financial statements are presented in Singapore Dollars ($)/SGD and all values are roundedto the nearest thousand ($’000) except when otherwise indicated.52

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.2 Changes in accounting policiesOn 1 July 2005, the Group adopted the new or revised FRS and amended Interpretations to FRS(“INT FRS”) that are applicable in the current financial year. The following are the FRS that arerelevant to the Group.FRS 1 (revised) Presentation of Financial StatementsFRS 2 (revised) InventoriesFRS 7 (revised) Cash Flow StatementsFRS 10 (revised) Events after the Balance Sheet DateFRS 12 (revised) Income TaxesFRS 14 (revised) Segment ReportingFRS 16 (revised) Property, Plant and EquipmentFRS 17 (revised) LeasesFRS 18 (revised) RevenueFRS 21 (revised) The Effects of Changes in Foreign Exchange RatesFRS 24 (revised) Related Party DisclosuresFRS 32 (revised) Financial Instruments: Disclosure and PresentationFRS 33 (revised) Earnings Per ShareFRS 37 (revised) Provisions, Contingent Liabilities and Contingent AssetsFRS 38 (revised) Intangible AssetsFRS 39Financial Instruments: Recognition and MeasurementFRS 102Share-based PaymentFRS 103Business CombinationsFRS 105Non-current Assets Held for Sale and Discontinued OperationsThe accounting policies have been consistently applied by the Group and the Company and areconsistent with those used in the previous financial year, except for the changes in accountingpolicies disclosed below.(a) Adoption of new FRSOn 1 July 2005, the Group and the Company adopted the following financial reportingstandards mandatory for annual financial periods beginning on or after 1 January 2005.(i)FRS 39 – Financial Instruments: Recognition and MeasurementAvailable-for-sale investments/long term investmentIn prior years, other investments held for long term are stated at cost. Provision ismade for any decline in value that is other than temporary.53

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.2 Changes in accounting policies (cont’d)(i)FRS 39 – Financial Instruments: Recognition and Measurement (cont’d)Upon the adoption of FRS 39, these investments are classified as available-for-saleinvestments. After initial recognition, available-for-sale investments are measuredat fair value in the revaluation reserve, except for certain available-for-sale financialassets that do not have a quoted market price in an active market and whose fair valuecannot be reliably measured, when they are measured at cost less any accumulatedimpairment losses. Gains or losses arising from changes in fair values are recognised asa separate component of equity until the investments are sold, collected or otherwisedisposed of or until the investments are determined to be impaired at which time thecumulative gain or loss previously reported in equity is included in the profit and lossaccount.The adoption of FRS 39 did not result in any transitional adjustments for the Groupand the Company as at 1 July 2005.Impairment of loans and receivablesUpon adoption of FRS 39, impairment allowances are made on an individual assessedbasis. Impairment allowances are calculated for trade receivables that are individuallysignificant and have objective evidence of impairment. In assessing individual impairment,management estimates the present value of future cash flows which are expectedto be received, taking into consideration of the borrower’s financial situation, thenet realisable value of the underlying collateral or guarantees in favour of the Group.Each impairment asset is assessed on its merits and the impairment allowance ismeasured as the difference between the loans and receivables’ carrying value andthe present value of the estimated future cash flows discounted at the loans’ originaleffective interest rate.Under the transitional provisions of FRS 39, the change in accounting policy on 1 July2005 resulted in credit adjustment of $120,000 to the Group’s revenue reserve.(ii)FRS 102 – Share-based PaymentFRS 102 requires the Group to recognise an expense in the profit and loss accountwith a corresponding increase in equity for share options granted after 22 November2002 and not vested by 1 July 2005. The total amount to be recognised as anexpense in the profit and loss account is determined by reference to the fair valueof the share options at the date of the grant and the number of share options to bevested by vesting date. At every balance sheet date, the Group revises its estimatesof the number of share options that are expected to vest by the vesting date. Anyrevision of this estimate is included in the profit and loss account and a correspondingadjustment to equity over the remaining vesting period.54

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.2 Changes in accounting policies (cont’d)(ii)FRS 102 – Share-based Payment (cont’d)The change does not have a financial impact on the opening balance of revenue reservesof the Group and the Company as there is no share options granted after 22 November2002 and not vested by 1 July 2005. For the financial year ended 30 June 2006,the change in accounting policy has resulted in a decrease of $99,000 in the Group’sprofit due to an increase in the employee benefits expense on share options grantedduring the financial year.(iii) FRS 105 – Non-current Assets Held for Sale and Discontinued OperationsThe Group has applied FRS 105 prospectively in accordance with the transitionalprovisions of FRS 105. Under the superseded FRS 35, the Group would have recogniseda discontinued operation at the earlier of:• the date the Group enters into a binding sale agreement; and• the date the board of directors have approved and announced a formal disposalplan.A discontinued operation is a major line of business or geographical unit held forsale or has been disposed of. The effect of this change in accounting policy is that adiscontinued operation is recognised by the Group at a later point than under FRS 35due to stricter criteria in FRS 105.(b) FRS and Interpretation of Financial Reporting Standard (“INT FRS”) not yet effectiveThe Group has not applied the following FRS and INT FRS that have been issued as at 31December 2005 but are only effective for annual financial periods beginning on or after 1January 2006 or 1 January 2007 :(i) FRS 19 (revised) – Employee Benefits (on or after 1 January 2006)The revised standard requires additional disclosure relating to information on trendsin the assets and liabilities in the defined benefit plans and the assumptions underlyingthe components of the defined benefit cost. The revised standard also includes therecognition and measurement of plan assets at fair value.(ii) FRS 40 – Investment Property (on or after 1 January 2007)This new standard states that investment properties that are measured at fair valueand any gains or losses arising from changes in the fair value of investment propertiesare included in the profit and loss account in the year which they arise. The standardalso permits entities to choose fair value model or cost model to determine the fairvalue of investment properties.55

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.2 Changes in accounting policies (cont’d)(iii) INT FRS 104 – Determining Whether an Arrangement Contains a Lease (on or after1 January 2006)This interpretation requires the determination of whether an arrangement is, orcontains a lease to be based on the substance of the arrangement and requires anassessment of whether the arrangement is dependent on the use of a specific assetor assets and the arrangement conveys a right to use the asset.(iv) FRS 107 – Financial Instruments : Disclosures (on or after 1 January 2007)This standard requires quantitative disclosures of nature and extend of risks arisingfrom financial instruments in addition to the disclosures currently required underFRS 32. Adoption of this standard will result in additional disclosures in the financialstatements.The Group expects that the adoption of the pronouncements listed above will have nosignificant impact on the financial statements in the period of initial application.The standards and interpretations below do not apply to the activities of the Group:• FRS 106 – Exploration for and Evaluation of Mineral Resources• INT FRS 105 – Rights to Interests Arising from Decommissioning,Restoration and Environmental Rehabilitation Funds• INT FRS 106 – Liabilities Arising from Participating in a Specific Market -Waste Electrical and Electronic Equipment• INT FRS 107 – Applying the Restatement Approach2.3 Significant accounting estimates and judgementsEstimates, assumptions concerning the future and judgements are made in the preparationof the financial statements. They affect the application of the Group’s accounting policies,reported amounts of assets, liabilities, income and expenses, and disclosures made. They areassessed on an on-going basis and are based on experience and relevant factors, includingexpectations of future events that are believed to be reasonable under the circumstances.(a) Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertaintyat the balance sheet date, that have a significant risk of causing a material adjustment tothe carrying amounts of assets and liabilities within the next financial year are discussedbelow.56

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.3 Significant accounting estimates and judgements (cont’d)(i)Impairment of goodwillThe Group determines whether goodwill is impaired at least on an annual basis. Thisrequires an estimation of the value-in-use of the cash-generating units to whichthe goodwill is allocated. Estimating the value in use requires the Group to make anestimate of the expected future cash flows from the cash-generating unit and also tochoose a suitable discount rate in order to calculate the present value of those cashflows. The carrying amount of the Group’s goodwill at 30 June 2006 is $624,000(2005: $656,000). The details are stated in Note 16.(ii)Depreciation of property, plant and equipmentProperty, plant and equipment is depreciated on a straight-line basis over theirestimated useful lives. Management estimates the useful lives of these property,plant and machinery to be 3 - 50 years. The carrying amount of the Group's property,plant and equipment at 30 June 2006 was $51,697,000 (2005 : $39,502,000).Changes in the expected level of usage and technological developments could impactthe economic useful lives and the residual values of these assets, therefore futuredepreciation charges could be revised.(iii) Income taxesThe Group has exposure to income taxes in several jurisdictions. Significant judgementis involved in determining the Group-wide provision for income taxes. There are certaintransactions and computations for which the ultimate tax determination is uncertainduring the ordinary course of business. The Group recognises liabilities for expectedtax issues based on estimates of whether additional taxes will be due. Where thefinal tax outcome of these matters is different from the amounts that were initiallyrecognised, such differences will impact the income tax and deferred tax provisions inthe period in which such determination is made. The Group’s tax payables at 30 June2006 was $3,880,000 (2005 : $3,925,000).(b) Critical judgments made in applying accounting policiesThe following are the judgements made by management in the process of applying theGroup’s accounting policies that have the most significant effect on the amounts recognisedin the financial statements.(i)Operating lease commitments – As lessorThe Group has entered into commercial property leases on its investment propertyportfolio. The Group has determined that it retains all the significant risks and rewardsof ownership of these properties which are leased out on operating leases.57

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.3 Significant accounting estimates and judgements (cont’d)(ii)Classification between investment properties and owner-occupied propertiesThe Group determines whether a property qualifies as an investment property, andhas developed criteria in making that judgement. Investment property is a propertyheld to earn rentals or for capital appreciation or both. Therefore, the Group considerswhether a property generates cash flows largely independently of the other assetsheld by the Group.Some properties comprise a portion that is held to earn rentals or for capitalappreciation and another portion that is held for use in the production or supplyof goods or services or for administrative purposes. If these portions could be soldseparately (or leased out separately under a finance lease), the Group accounts forthe portions separately. If the portions could not be sold separately, the property isan investment property only if an insignificant portion is held for use in the productionor supply of goods or services or for administrative purposes.Judgement is made on an individual property basis to determine whether ancillaryservices are so significant that a property does not qualify as investment property.2.4 Subsidiaries and principles of consolidation(a) SubsidiariesA subsidiary is an entity over which the Group has the power to govern the financial andoperating policies so as to obtain benefits from its activities. The Group generally has suchpower when it directly or indirectly, holds more than 50% of the issued share capital, orcontrols more than half of the voting power, or controls the composition of the Board ofDirectors.In the Company’s separate financial statements, investment in subsidiaries are accountedfor at cost less impairment losses.(b) Principles of consolidationThe consolidated financial statements comprise the financial statements of the Company andits subsidiaries as at the balance sheet date. The financial statements of the subsidiariesare prepared for the same reporting date as the parent Company. Consistent accountingpolicies are applied for like transactions and events in similar circumstances.All intra-group balances, transactions, income and expenses and profits and losses resultingfrom intra-group transactions that are recognised in assets, are eliminated in full.Subsidiary is fully consolidated from the date of acquisition, being the date on which theGroup obtains control, and continue to be consolidated until the date that such controlceases.58

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.4 Subsidiaries and principles of consolidation (cont’d)(b) Principles of consolidation (cont’d)Acquisitions of subsidiaries are accounted for using the purchase method. The cost of anacquisition is measured as the fair value of the assets given, equity instruments issued andliabilities incurred or assumed at the date of exchange, plus costs directly attributable tothe acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumedin a business combination are measured initially at their fair values at the acquisition date,irrespective of the extent of any minority interest.Any excess of the cost of the business combination over the Group’s interest in the netfair value of the identifiable assets, liabilities and contingent liabilities represents goodwill.The goodwill is accounted for in accordance with the accounting policy for goodwill statedin Note 2.15.Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities over the cost of business combination is recognised in the profitand loss account on the date of acquisition.Minority interests represent the portion of profit or loss and net assets in subsidiariesnot held by the Group. They are presented in the consolidated balance sheet within equity,separately from the parent shareholders’ equity, and are separately disclosed in theconsolidated profit and loss account.2.5 Functional and foreign currency(a) Functional currencyThe management has determined the currency of the primary economic environment inwhich the Group operates i.e. functional currency, to be SGD. Sales prices and major costsof providing goods and services including major operating expenses are primarily influencedby fluctuations in SGD.(i)Foreign currency transactionsTransactions in foreign currencies are measured in the respective functional currencyof the Company and its subsidiaries and are recorded on initial recognition in thefunctional currency at exchange rates approximating those ruling at the transactiondates. Monetary assets and liabilities denominated in foreign currencies are translatedat the closing rate of exchange ruling at the balance sheet date. Non-monetary itemsthat are measured in terms of historical cost in a foreign currency are translatedusing the exchange rates as at the dates of the initial transactions. Non-monetaryitems measured at fair value in a foreign currency are translated using the exchangerates at the date when the fair value was determined.59

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.5 Functional and foreign currency (cont’d)(i)Foreign currency transactions (cont’d)Exchange differences arising on the settlement of monetary items or on translatingmonetary items at the balance sheet date are recognised in the profit and lossaccount except for exchange differences arising on monetary items that form partof the Group’s net investment in foreign subsidiaries, which are recognised initiallyin a separate component of equity as foreign currency translation reserve in theconsolidated balance sheet and recognised in the consolidated profit and loss accounton disposal of the subsidiary. In the Company’s separate financial statements, suchexchange differences are recognised in the profit and loss account.(ii)Foreign currency translation2.6 Revenue recognitionThe results and financial position of local operation is translated into SGD using thefollowing procedures:• Assets and liabilities for each balance sheet presented are translated at theclosing rate ruling at that balance sheet date; and• Income and expenses for each income statement are translated at averageexchange rates for the year, which approximates the exchange rates at thedates of the transactions.All resulting exchange differences are recognised in a separate component of equityas foreign currency translation reserve.On disposal of a foreign operation, the cumulative amount of exchange differencesdeferred in equity relating to that foreign operation is recognised in the profit and lossaccount as a component of the gain or loss on disposal.Revenue is recognised to the extent that it is probable that the economic benefits will flow tothe Group and the revenue can be reliably measured. The following specific recognition criteriamust also be met before revenue is recognised:(a) Sale of goodsRevenue from the sale of goods are recognised upon passage of title to the customer whichgenerally coincides with their delivery and acceptance. Medical centre and laboratoryservices income are recognised upon the rendering of services.(b) Revenue incomeRental income is recognised on an accrual basis.60

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.6 Revenue recognition (cont’d)(c) Interest incomeInterest income is accrued on a day-to-day basis.(d) Dividend incomeDividend income is included to the extent of dividends declared during the year.2.7 Property, plant and equipmentAll items of property, plant and equipment are initially recorded at cost. Subsequent torecognition, property, plant and equipment are stated at cost or valuation less accumulateddepreciation and any accumulated impairment. Land and buildings are subsequently revalued, onan asset-by-asset basis, to their fair values. Revaluations are made annually to ensure thattheir carrying amount does not differ materially from their fair value at the balance sheet date.The initial cost of property, plant and equipment comprises its purchase price, including importduties and non-refundable purchase taxes and any directly attributable costs of bringing theasset to its working condition and location for its intended use, any trade discounts and rebatesare deducted in arriving at the purchase price. Expenditure incurred after the property, plantand equipment have been put into operation, such as repairs and maintenance and overhaulcosts, is normally charged to the profit and loss account in the period in which the costs areincurred. In situations where it can be clearly demonstrated that the expenditure has resultedin an increase in the future economic benefits expected to be obtained from the use of an itemof property, plant and equipment beyond its originally assessed standard of performance, theexpenditure is capitalised as an additional cost of property, plant and equipment.When an asset is revalued, any increase in the carrying amount is credited directly to theasset revaluation reserve. However, the increase is recognised in the profit and loss accountto the extent that it reverses a revaluation decrease of the same asset previously recognisedin the profit and loss account. When an asset’s carrying amount is decreased as a result of arevaluation, the decrease is recognised in the profit and loss account. However, the decreaseis debited directly to the asset revaluation reserve to the extent of any credit balance existingin the reserve in respect of that asset.Any accumulated depreciation as at the revaluation date is eliminated against the gross carryingamount of the asset and the net amount is restated to the revalued amount of the asset.The revaluation surplus included in the asset revaluation reserve in respect of an asset, istransferred directly to accumulated profits on retirement or disposal of the asset.61

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.8 DepreciationFreehold land has an unlimited useful life and therefore is not depreciated. Depreciation iscalculated on the straight line method to write off the cost or valuation of property, plant andequipment over their estimated useful lives. The estimated useful lives of the property, plantand equipment are as follows :Freehold and leasehold buildingsFurniture, fittings and equipmentMotor vehiclesRenovationsPlant and machineries50 years3 - 10 years5 years3 - 10 years10 yearsNo depreciation is provided for construction in progress.The useful life and depreciation method are reviewed annually to ensure that the method andperiod of depreciation are consistent with the expected pattern of economic benefits from itemsof property, plant and equipment.Fully depreciated property, plant and equipment are retained in the financial statements untilthey are no longer in use and no further charge for depreciation is made in respect of theseassets.An item of property, plant and equipment is derecognised upon disposal or when no futureeconomic benefits are expected from its use or disposal. Any gain or loss arising on derecognitionof the asset is included in the profit and loss account in the year the asset is derecognised.2.9 Investment propertiesInvestment properties are properties held either to earn rental income or for capital appreciationor both. Investment properties are measured initially at cost, including transaction costs. Thecarrying amount includes the cost of replacing part of an existing investment property at thetime that cost is incurred if the recognition criteria are met and excludes the costs of day-todayservicing of an investment property. Subsequent to initial recognition, investment propertiesare stated at fair value, which reflects market conditions at the balance sheet date. Gains orlosses arising from changes in the fair values of investment properties are included in the profitand loss account in the year in which they arise.Investment properties are derecognised when either they have been disposed of or when theinvestment property is permanently withdrawn from use and no future economic benefit isexpected from its disposal. Any gains or losses on the retirement or disposal of an investmentproperty are recognised in the profit and loss account in the year of retirement or disposal.62

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.10 Impairment of non-financial assetsThe Group assesses at each reporting date whether there is an indication that an asset maybe impaired. If any such indication exists, or when annual impairment testing for an asset isrequired, the Group makes an estimate of the asset’s recoverable amount.An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair valueless costs to sell and its value in use and is determined for an individual asset, unless the assetdoes not generate cash inflows that are largely independent of those from other assets orgroups of assets. In assessing value in use, the estimated future cash flows are discounted totheir present value using a pre-tax discount rate that reflects current market assessments ofthe time value of money and the risks specific to the asset. Where the carrying amount of anasset exceeds its recoverable amount, the asset is considered impaired and is written down toits recoverable amount.Impairment losses of continuing operations are recognised in the profit and loss account as‘impairment losses’ or treated as a revaluation decrease for assets carried at revalued amountto the extent that the impairment loss does not exceed the amount held in the asset revaluationreserve for that same asset.An assessment is made at each reporting date as to whether there is any indication that previouslyrecognised impairment losses recognised for an asset other than goodwill may no longer exist ormay have decreased. If such indication exists, the recoverable amount is estimated. A previouslyrecognised impairment loss is reversed only if there has been a change in the estimates usedto determine the asset’s recoverable amount since the last impairment loss was recognised. Ifthat is the case the carrying amount of the asset is increased to its recoverable amount. Thatincreased amount cannot exceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognised for the asset in prior years. Reversal ofan impairment loss is recognised in the profit and loss account unless the asset is carried atrevalued amount, in which case the reversal in excess of impairment loss previously recognisedthrough the profit and loss account is treated as a revaluation increase. After such a reversal,the depreciation charge is adjusted in future periods to allocate the asset’s revised carryingamount, less any residual value, on a systematic basis over its remaining useful life.The Group does not reverse in a subsequent period, any impairment loss recognised forgoodwill.63

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.11 Financial assetsFinancial assets within the scope of FRS 39 are classified as either financial assets at fairvalue through profit or loss, loans and receivables, held-to-maturity investments, or availablefor-salefinancial assets, as appropriate. Financial assets are recognised on the balance sheetwhen, and only when, the Group becomes a party to the contractual provisions of the financialinstrument.When financial assets are recognised initially, they are measured at fair value, plus, in the caseof financial assets not at fair value through profit or loss, directly attributable transactioncosts. The Group determines the classification of its financial assets after initial recognitionand, where allowed and appropriate, re-evaluates this designation at each financial year-end.All regular way purchases and sales of financial assets are recognised on the trade date i.e.the date that the Group commits to purchase the asset. Regular way purchases or sales arepurchases or sales of financial assets that require delivery of assets within the period generallyestablished by regulation or convention in the marketplace concerned.The Group did not have financial assets at fair value through profit or loss and held-to-maturityinvestments.(a) Loans and receivablesNon-derivative financial assets with fixed or determinable payments that are not quotedin an active market are classified as loans and receivables. Such assets are carried atamortised cost using the effective interest method. Gains and losses are recognised inthe profit and loss account when the loans and receivables are derecognised or impaired,as well as through the amortisation process.(b) Available-for-sale financial assetsAvailable-for-sale financial assets are those non-derivative financial assets that aredesignated as available-for-sale or are not classified as either financial assets at fair valuethrough profit or loss, loans and receivables or held-to-maturity investments. After initialrecognition, available-for sale financial assets are measured at fair value with gains or lossesbeing recognised in the fair value adjustment reserve until the investment is derecognisedor until the investment is determined to be impaired at which time the cumulative gain orloss previously reported in equity is included in the profit and loss account.The fair value of investments that are actively traded in organised financial markets isdetermined by reference to the relevant Exchange’s quoted market bid prices at the closeof business on the balance sheet date. For investments where there is no active market,fair value is determined using valuation techniques. Such techniques include using recentarm’s length market transactions; reference to the current market value of anotherinstrument, which is substantially the same; discounted cash flow analysis and optionpricing models. For investments where there is no active market and whose values cannotbe reliably measured, are stated at cost less any accumulated impairment losses and therelevant impairment losses shall not be reversed.64

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.12 Associated companiesAn associated company is an entity, not being a subsidiary, in which the Group has significantinfluence. This generally coincides with the Group having 20% or more of the voting power, orhas representation on the board of directors.The Group’s investments in associates are accounted for using the equity method. Under theequity method, the investment in associated company is carried in the balance sheet at costplus post-acquisition changes in the Group’s share of net assets of the associated company. TheGroup’s share of the profit or loss of the associated company is recognised in the consolidatedprofit and loss account. Where there has been a change recognised directly in the equity ofthe associated company, the Group recognises its share of such changes. After application ofthe equity method, the Group determines whether it is necessary to recognise any additionalimpairment loss with respect to the Group’s net investment in the associated company. Theassociated company is equity accounted for from the date the Group obtains significant influenceuntil the date the Group ceases to have significant influence over the associated company.Goodwill relating to an associated company is included in the carrying amount of theinvestment.Any excess of the Group’s share of the net fair value of the associated company’s identifiableassets, liabilities and contingent liabilities over the cost of the investment is excluded from thecarrying amount of the investment and is instead included as income in the determination of theGroup’s share of the associated company’s profit or loss in the period in which the investmentis acquired.When the Group’s share of losses in an associated company equals or exceeds its interest in theassociated company, including any other unsecured receivables, the Group does not recognisefurther losses, unless it has incurred obligations or made payments on behalf of the associatedcompany.The most recent available audited financial statements of the associates are used by the Groupin applying the equity method. Where the dates of the audited financial statements used arenot co-terminous with those of the Group, the share of results is arrived at from the lastaudited financial statements available and un-audited management financial statements to theend of the accounting period. Consistent accounting policies are applied for like transactions andevents in similar circumstances.In the Company’s separate financial statements, investments in associates are accounted forat cost less impairment losses.2.13 Long term investmentsLong term investments are classified as available-for-sale financial assets. The accountingpolicy for the financial asset is stated in Note 2.11.65

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.14 Intangible assetsCosts relating to patents and trademarks, which are acquired, are capitalised and amortised ona straight-line basis over the estimated useful lives of 5 to 15 years.2.15 GoodwillGoodwill acquired in a business combination is initially measured at cost being the excess of thecost of the business combination over the Group’s interest in the net fair value of the identifiableassets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured atcost less any accumulated impairment losses.The Group has adopted FRS 103 : Business Combinations, FRS 36 (revised) : Impairment ofAssets and FRS 38 (revised) : Intangible Assets with effect from 1 July 2004. Since then, goodwillis reviewed for impairment, annually or more frequently if events or changes in circumstancesindicate that the carrying value may be impaired.For the purpose of impairment testing, goodwill acquired in a business combination is, fromthe acquisition date, allocated to each of the Company’s cash-generating units, or groups ofcash-generating units, that are expected to benefit from the synergies of the combination,irrespective of whether other assets or liabilities of the Company are assigned to those unitsor groups of units.Impairment is determined by assessing the recoverable amount of the cash-generating unit towhich the goodwill relates. Where the recoverable amount of the cash-generating unit is lessthan the carrying amount, an impairment loss is recognised.2.16 InventoriesInventories are stated at the lower of cost and net realisable value. Cost comprises directmaterials on a first-in-first-out basis and includes freight and handling charges. In the case offinished products, costs includes direct labour and attributable production overheads based on anormal level of activity. Net realisable value is the estimated selling price less estimated costsnecessary to make the sale and after making allowance for damaged, obsolete and slow-movingitems.2.17 Trade and other receivablesTrade and other receivables, including amounts due from subsidiaries are classified and accountedfor as loans and receivables under FRS 39. The accounting policy for this category of financialassets is stated in Note 2.11.An allowance is made for uncollectible amounts when there is objective evidence that the Groupwill not be able to collect the debt. Bad debts are written-off when identified. Further details onthe accounting policy for impairment of financial assets are stated in Note 2.22.66

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.18 Loans and borrowingsAll loans and borrowings are initially recognised at cost being the fair value of the considerationreceived and including acquisition charges associated with the loans and borrowings.Borrowing costs are generally expensed as incurred. Borrowing costs are capitalised if theyare directly attributable to the acquisition, construction or production of a qualifying asset.Capitalisation of borrowing costs commences when the activities to prepare the asset forits intended use or sale are in progress and the expenditures and borrowing costs are beingincurred. Borrowing costs are capitalised until the assets are ready for their intended use. Ifthe resulting carrying amount of the asset exceeds its recoverable amount, an impairment lossis recorded.2.19 Trade and other payablesLiabilities for trade and other amounts payable, which are normally settled on 30-90 day terms,and payables to related parties are initially recognised at fair value and subsequently measuredat amortised cost using the effective interest method.Gains and losses are recognised in the profit and loss account when the liabilities are derecognisedas well as through the amortisation process.2.20 Derecognition of financial assets and liabilities(a) Financial assetsA financial asset (or, where applicable a part of a financial asset or part of a Group ofsimilar financial assets) is derecognised where:• The contractual rights to receive cash flows from the asset have expired;• The Group retains the contractual rights to receive cash flows from the asset, buthas assumed an obligation to pay them in full without material delay to a third partyunder a ‘pass-through’ arrangement; or• The Group has transferred its rights to receive cash flows from the asset and either(a) has transferred substantially all the risks and rewards of the asset, or (b) hasneither transferred nor retained substantially all the risks and rewards of the asset,but has transferred control of the asset.67

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.20 Derecognition of financial assets and liabilities (cont’d)(a) Financial assets (cont’d)Where the Group has transferred its rights to receive cash flows from an asset and hasneither transferred nor retained substantially all the risks and rewards of the asset nortransferred control of the asset, the asset is recognised to the extent of the Group’scontinuing involvement in the asset.Continuing involvement that takes the form of a guarantee over the transferred assetis measured at the lower of the original carrying amount of the asset and the maximumamount of consideration that the Group could be required to repay.Where continuing involvement takes the form of a written and/or purchased option on thetransferred asset, the extent of the Group’s continuing involvement is the amount of thetransferred asset that the Group may repurchase, except that in the case of a written putoption on an asset measured at fair value, the extent of the Group’s continuing involvementis limited to the lower of the fair value of the transferred asset and the option exerciseprice.On derecognition of a financial asset in its entirety, the difference between the carryingamount and the sum of (a) the consideration received (including any new asset obtainedless any new liability assumed) and (b) any cumulative gain or loss that has been recogniseddirectly in equity is recognised in the profit and loss account.(b) Financial liabilities2.21 ProvisionsA financial liability is derecognised when the obligation under the liability is discharged orcancelled or expires.Where an existing financial liability is replaced by another from the same lender onsubstantially different terms, or the terms of an existing liability are substantially modified,such an exchange or modification is treated as a derecognition of the original liability andthe recognition of a new liability, and the difference in the respective carrying amounts isrecognised in the profit and loss account.Provisions are recognised when the Group has a present obligation (legal or constructive) where,as a result of a past event, it is probable that an outflow of resources embodying economicbenefits will be required to settle the obligation and a reliable estimate can be made of theamount of the obligation. Where the Group expects some or all of a provision to be reimbursed,the reimbursement is recognised as a separate asset but only when the reimbursement isvirtually certain. The expense relating to any provision is presented in the profit and lossaccount net of any reimbursement.Provisions are reviewed at each balance sheet date and adjusted to reflect the current bestestimate. If it is no longer probable that an outflow of resources embodying economic benefitswill be required to settle the obligation, the provision is reversed.68

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.22 Impairment of financial assetsThe Group assesses at each balance sheet date whether there is any objective evidence that afinancial asset or Group of financial assets is impaired.(a) Assets carried at amortised costIf there is objective evidence that an impairment loss on loans and receivables or held-tomaturityinvestments carried at amortised cost has been incurred, the amount of the lossis measured as the difference between the asset’s carrying amount and the present valueof estimated future cash flows (excluding future credit losses that have not been incurred)discounted at the financial asset’s original effective interest rate (i.e. the effective interestrate computed at initial recognition). The carrying amount of the asset is reduced throughthe use of an allowance account. The amount of the loss is recognised in the profit andloss account.If, in a subsequent period, the amount of the impairment loss decreases and the decreasecan be related objectively to an event occurring after the impairment was recognised, thepreviously recognised impairment loss is reversed. Any subsequent reversal of an impairmentloss is recognised in the profit and loss account, to the extent that the carrying value ofthe asset does not exceed its amortised cost at the reversal date.(b) Assets carried at costIf there is objective evidence that an impairment loss on an unquoted equity instrumentthat is not carried at fair value because its fair value cannot be reliably measured, or ona derivative asset that is linked to and must be settled by delivery of such an unquotedequity instrument has been incurred, the amount of the loss is measured as the differencebetween the asset’s carrying amount and the present value of estimated future cashflows discounted at the current market rate of return for a similar financial asset. Suchimpairment losses are not reversed in subsequent periods.2.23 Employee benefits(i)Employee leave entitlementEmployee entitlements to annual leave are recognised when they accrue to employees. Aprovision is made for the estimated liability for leave as a result of services rendered byemployees up to balance sheet date.(ii)Defined contribution planAs required by law, the Group’s companies in Singapore and certain overseas subsidiariesmake contributions to the state pension funds of the respective countries. Suchcontributions are recognised as compensation expenses in the same period as theemployment that gives rise to the contribution.69

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.23 Employee benefits (cont’d)2.24 Leases(iii) Employment Ordinance long service paymentsCertain of the Group’s employees have completed the required number of years of serviceto the Group in order to be eligible for long service payments under the Hong KongEmployment Ordinance in the event of the termination of their employment. The Group isliable to make such payments in the event that such a termination of employment meetsthe circumstances specified in the Employment Ordinance.A provision is recognised in respect of the probable future long service payments expectedto be made. Provision is based on the best estimate of the probable future paymentswhich have been earned by the employees from their service to the Group at the balancesheet date.(iv) Share optionsThe Company has in place an Employees Share Option Scheme for the granting of optionsto eligible employees to subscribe for shares in the Company. There are no charges to theearnings upon the grant or exercise of the options because the exercise price approximatesthe market value of the shares on the date of grant.Details of the Plan are disclosed in Note 30 to the financial statements.(a) As LesseeFinance leases, which effectively transfer to the Group substantially all the risks andrewards incidental to ownership of the leased item, are capitalised at amounts equal, atthe inception of the lease, to the fair value of the leased item or, if lower, at the presentvalue of the minimum lease payments. Lease payments are apportioned between thefinance charges and reduction of the lease liability so as to achieve a constant periodic rateof interest on the remaining balance of the liability for each period. Finance charges arecharged directly to the profit and loss account.Capitalised leased assets are depreciated over the shorter of the estimated useful life ofthe asset or the lease term.Leases where the lessor effectively retains substantially all the risks and rewards ofownership of the leased item, are classified as operating leases. Operating lease paymentsare recognised as an expense in the profit and loss account on a straight-line basis overthe lease term.The aggregate benefit of incentives provided by the lessor is recognised as a reduction ofrental expense over the lease term on a straight-line basis.70

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.24 Leases (cont’d)(b) As Lessor2.25 TaxationLeases where the Group retains substantially all the risks and rewards of ownership ofthe asset are classified as operating leases. Initial direct costs incurred in negotiating anoperating lease are added to the carrying amount of the leased asset and recognised overthe lease term on the same bases as rental income.(i)Current taxCurrent tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the taxation authorities. The tax ratesand tax laws used to compute the amount are those that are enacted or substantivelyenacted by the balance sheet date.(ii)Deferred taxDeferred income tax is provided using the liability method on temporary differences atthe balance sheet date between the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes.Deferred tax liabilities are recognised for all taxable temporary differences, except:• Where the deferred tax liability arises from the initial recognition of goodwill or of anasset or liability in a transaction that is not a business combination and, at the time ofthe transaction, affects neither the accounting profit nor taxable profit or loss; and• In respect of taxable temporary differences associated with investments in subsidiaries,associated companies and interests in joint ventures, where the timing of the reversalof the temporary differences can be controlled and it is probable that the temporarydifferences will not reverse in the foreseeable future.71

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.25 Taxation (cont’d)(ii)Deferred tax (cont’d)Deferred income tax assets are recognised for all deductible temporary differences, carryforwardof unused tax credits and unused tax losses, to the extent that it is probable thattaxable profit will be available against which the deductible temporary differences, and thecarry-forward of unused tax credits and unused tax losses can be utilised except:• Where the deferred income tax asset relating to the deductible temporary differencearises from the initial recognition of an asset or liability in a transaction that isnot a business combination and, at the time of the transaction, affects neither theaccounting profit nor taxable profit or loss; and• In respect of deductible temporary differences associated with investments insubsidiaries, associated companies and interests in joint ventures, deferred tax assetsare recognised only to the extent that it is probable that the temporary differenceswill reverse in the foreseeable future and taxable profit will be available against whichthe temporary differences can be utilised.• The carrying amount of deferred income tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficient taxableprofit will be available to allow all or part of the deferred income tax asset to beutilised. Unrecognised deferred income tax assets are reassessed at each balancesheet date and are recognised to the extent that it has become probable that futuretaxable profit will allow the deferred tax asset to be recovered.Deferred income tax assets and liabilities are measured at the tax rates that are expectedto apply to the year when the asset is realised or the liability is settled, based on taxrates (and tax laws) that have been enacted or substantively enacted at the balance sheetdate.Income tax relating to items recognised directly in equity is recognised in equity.Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable rightexists to set off current tax assets against current tax liabilities and the deferred taxesrelate to the same taxable entity and the same taxation authority.72

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)2. Summary of significant accounting policies (cont’d)2.25 Taxation (cont’d)(iii) Sales taxRevenues, expenses and assets are recognised net of the amount of sales tax except:• Where the sales tax incurred on a purchase of assets or services is not recoverablefrom the taxation authority, in which case the sales tax is recognised as part of thecost of acquisition of the asset or as part of the expense item as applicable; and• Receivables and payables that are stated with the amount of sales tax included.The net amount of sales tax recoverable from, or payable to, the taxation authority isincluded as part of receivables or payables in the balance sheet.2.26 Cash and cash equivalentsCash and cash equivalents comprise cash on hand, demand deposits, and short-term, highlyliquid investments that are readily convertible to known amounts of cash and which are subjectto an insignificant risk of changes in value. These also include bank overdrafts that form anintegral part of the Group’s cash management.Cash and short term deposits carried in the balance sheets are classified and accounted for asloans and receivables under FRS 39. The accounting policy for this category of financial assetsis stated in Note 2.11.3. RevenueRevenue for the Group represents sales of goods at invoiced value less returns and tradediscounts, rental income, medical service income and laboratory service income.Revenue is analysed as follows :Group2006 2005$’000 $’000(Restated)Sales of goods 152,945 140,953Medical centre income 20,230 18,353Laboratory service income – 12Rental income 272 294173,447 159,61273

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)4. Operating profitOperating profit is stated after charging/(crediting) :GroupContinuingoperationsDiscontinuedoperationsTotal2006 2005 2006 2005 2006 2005$’000 $’000 $’000 $’000 $’000 $’000Depreciation of property, plantand equipment 5,837 5,394 535 514 6,372 5,908(Profit)/loss on sale of property,plant and equipment (57) (373) (1) 9 (58) (364)Property, plant and equipmentwritten off 11 246 – – 11 246Amortisation of intangibleassets 19 35 – – 19 35Directors’ fee 158 166 – – 158 166Directors’ emoluments :- Directors of Company 933 680 – – 933 680- Other Directors ofsubsidiaries 1,243 1,642 – – 1,243 1,642(Write back)/allowance fordoubtful receivables- trade 9 40 (61) 12 (52) 52- non-trade – 170 – – – 170Bad debts written off 5 17 – – 5 17Inventory written off 120 374 – – 120 374Share-based payment expense 99 – – – 99 –Provision for inventoryobsolescence 136 433 (3) (3) 133 4305. Interest incomeGroupContinuingoperationsDiscontinuedoperationTotal2006 2005 2006 2005 2006 2005$’000 $’000 $’000 $’000 $’000 $’000Interest earned from fixed bankdeposits 202 21 – 6 202 27Interest earned from anassociated company – 6 – – – 6Others – 17 – – – 17202 44 – 6 202 5074

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)6. Interest expenseGroup2006 2005$’000 $’000Interest on bank overdrafts 7 21Interest on hire purchase 27 52Interest on loans and borrowings 906 626940 6997. Tax expenseThe major components of income tax expense for the years ended 30 June are:Continuing operationsCurrent income taxCurrent income tax 4,231 4,209Under/(over) provision in respect of previous years 40 (316)Deferred taxationMovement in temporary differences (263) 65Discontinued operationCurrent income tax4,0081493,958934,157 4,05175

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)7. Tax expense (cont’d)A reconciliation of the statutory tax rate to the Group’s effective tax rate applicable to profitbefore taxation was as follows :Group2006 2005$’000 $’000Profit from continuing operations before taxation 17,538 15,505Profit from discontinued operation before taxation 1,040 955Profit before taxation for the year 18,578 16,460Taxation on profit before taxation for the year at 20%(2005 : 20%) 3,716 3,292Adjustments:Permanent differences/expenses not deductible for tax purposes 1,503 1,321Income not taxable (1,016) (1,514)Investment allowance – 58Difference in effective tax rate inother countries 130 684Deferred tax assets not recognised – 690Utilisation of deferred tax assets previously not recognised – (25)Utilisation of previous years’ tax losses and unabsorbed capitalallowances (249) (39)Under/(over) provision in prior years 40 (316)Others 33 (100)4,157 4,051As at 30 June 2006, certain subsidiaries have unutilised tax losses amounting to approximately$2,218,000 (2005 : $3,462,000) available for setting-off against future taxable profit subjectto the regulations and agreements by the relevant tax authorities. Deferred tax assets havenot been recognised with regards to the tax losses as it is not probable that sufficient taxableprofits will be available to allow part or all the carry forward tax losses to be utilised.76

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)8. Discontinued operationOn 30 June 2006, the Group disposed Synco (H.K.) Limited, a wholly-owned subsidiary, which wasreported in the prescription/OTC segment previously. The disposal is an effort to concentrateon the Group principal activities.The value of assets and liabilities of Synco (H.K.) Limited recorded in the consolidated financialstatements as at 30 June, and the cash flow effect of the disposal were :2006 2005$’000 $’000Property, plant and equipment 3,099 3,891Inventories 1,069 1,146Trade and other receivables 995 914Cash and cash equivalents 249 8485,412 6,799Trade and other payables (2,812) (4,710)Tax payable (153) (94)Deferred tax liabilities (239) (272)Net assets directly associated with the assets being disposed of 2,208 1,723The results attributable to the discontinued operation for the year are presented as below:Revenue 6,974 6,277Expenses (5,934) (5,322)Profit from operations 1,040 955Tax expense (149) (93)Profit for the year from discontinued operation 891 862The net cash flows attributable to the discontinued operation are as follows :Net cash (outflow)/inflow from operating activities (501) 669Net cash outflow from investing activities (75) (162)Net cash outflow from financing activities – (455)Net cash (outflows)/inflows (576) 5277

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)9. DividendGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Declared and paid during the yearFirst and Final dividend for 2005 of 1.0cent per share tax exempt one tier (2004: 0.75 cent per share tax exempt one tier) 2,873 2,143 2,873 2,143Special dividend for 2005 of 1.0 cent pershare tax exempt one tier (2004 : 0.5cent per share tax exempt one tier) 2,873 1,428 2,873 1,4285,746 3,571 5,746 3,571The Directors have proposed that a first and final dividend of 1.0 cent per share and a specialdividend of 1.0 cent per share, to be paid for in respect of the current financial year. Thisdividend will be recorded as a liability on the balance sheets of the Group and of the Companyupon approval by the shareholders of the Company at the forthcoming Annual General Meetingof the Company.10. Earnings per share(a) Continuing operationsBasic earnings per share is calculated by dividing the Group’s profit attributable toshareholders by the weighted average number of ordinary shares in issue during thefinancial year.Diluted earnings per share is calculated by dividing the Group’s profit attributable toshareholders by the weighted average number of ordinary shares in issue, adjusted for theeffect of dilutive share options during the financial year.78

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)10. Earnings per share (cont’d)(a) Continuing operations (cont’d)Group2006 2005$’000 $’000(Restated)Profit for the year attributable to ordinary equity holders of theCompany 14,431 12,438Less : Profit from discontinued operation attributable toordinary equity holders of the Company (891) (862)Profit from continuing operations attributable to ordinary equityholders of the Company used in computation of basic earningsper share 13,540 11,576‘000 ‘000Weighted average number of ordinary shares forcomputing of basic earnings per share 360,299 358,241Adjustment for share options 530 594Weighted average number of ordinary sharesfor computing diluted earnings per share 360,829 358,835CentsCentsBasic earnings per share- continuing operations 3.76 3.23- discontinued operation 0.25 0.24Diluted earnings per share- continuing operations 3.75 3.23- discontinued operation 0.25 0.24(b) Discontinued operationThe basic and diluted earnings per share from discontinued operation are calculated bydividing the “profit from discontinued operation attributable to ordinary equity holders ofthe Company” by the “weighted average number of ordinary shares for basic earnings andloss per share computation” and “weighted average number of ordinary shares adjustedfor the effect of dilution” respectively. These profit and loss account and share data arepresented above in caption (a) of this Note.79

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)11. Property, plant and equipmentGroupFurniture,fittingsandequipmentLongtermFreeholdLong-termFreehold leasehold leaseholdMotor RenovationsPlant andConstructioninland building land buildingvehiclesmachineries progress Total$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Cost and valuationAt 1 July 2004 4,030 1,401 10,701 2,675 28,295 2,464 4,618 1,835 – 56,019Additions – – 6,157 1,539 3,655 603 534 148 – 12,636Disposals (1,517) (147) (149) (37) (375) (813) (365) – – (3,403)Written off – – – – (602) (602)Gain on valuation 114 – 743 186 – – – – – 1,043Foreign currencytranslation adjustment (109) (36) (121) (30) (457) (25) 24 (44) – (798)At 30 June 2005 and 1 2,518 1,218 17,331 4,333 30,516 2,229 4,811 1,939 – 64,895July 2005Additions – – – 24 3,955 536 1,270 183 9,455 15,423Disposals – – – – (1,792) (290) (1,047) (1) – (3,130)Disposal of a subsidiary – – – – (5,539) (70) – – – (5,609)Written off – – – – (1,389) – – – – (1,389)Transfer from investmentproperties – – 3,054 764 – – – – – 3,818Transfer to investmentproperties – – (523) – – – – – – (523)Gain on valuation 36 16 2,731 786 – – – – – 3,569Foreign currencytranslation adjustment (27) (9) (111) (131) (255) (15) (96) (22) – (666)At 30 June 2006 2,527 1,225 22,482 5,776 25,496 2,390 4,938 2,099 9,455 76,388Representing -Cost – – – – 25,496 2,390 4,938 2,099 9,455 44,378Valuation 2,527 1,225 22,482 5,776 – – – – – 32,0102,527 1,225 22,482 5,776 25,496 2,390 4,938 2,099 9,455 76,38880

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)11. Property, plant and equipment (cont’d)GroupFreeholdlandFreeholdbuildingLong-termleaseholdlandleaseholdbuildingFurniture,fittingsandequipmentMotorvehiclesLongtermRenovationsPlant and ConstructioninmachineriesprogressTotal$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Accumulated depreciationAt 1 July 2004 – – – – 16,254 1,443 2,450 1,511 – 21,658Charge for 2005 – 33 133 33 4,444 359 838 60 – 5,900Disposal – (2) – – (477) (759) (118) – – (1,356)Written off – – – – (356) – – – – (356)Adjustment for deficit invaluation – (31) (132) (33) – – – – – (196)Foreign currency translationadjustment – – (1) – (219) (12) 11 (36) – (257)At 30 June 2005 and 1 July2005– – – – 19,646 1,031 3,181 1,535 – 25,393Charge for the year – 24 358 90 4,650 375 730 137 – 6,364Disposals – – – – (833) 3) (198) (896) (1) – (1,928)Disposal of a subsidiary – – – – (2,452) (59) – – – (2,511)Written off – – – – (1,378) – – – – (1,378)Adjustment for deficit invaluation – 32 (239) (54) – – – – – (261)Foreign currency translationadjustment – (9) 269 55 (881) (74) (375) 27 – (988)At 30 June 2006 – 47 388 91 18,752 1,075 2,640 1,698 – 24,691Net book valueAt 30 June 2006 2,527 1,178 22,094 5,685 6,744 1,315 2,298 401 9,455 51,697At 30 June 2005 2,518 1,218 17,331 4,333 10,870 1,198 1,630 404 – 39,50281

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)11. Property, plant and equipment (cont’d)Furniture,fittings andequipmentMotorvehicles Renovations Total$’000 $’000 $’000 $’000CompanyCostAt 1 July 2004 390 868 83 1,341Additions 54 631 – 685Disposal (20) (531) – (551)At 30 June 2005 and1 July 2005 424 968 83 1,475Additions 44 200 – 244Disposal (16) – – (16)At 30 June 2006 452 1,168 83 1,703Accumulated depreciationAt 1 July 2004 284 624 23 931Charge for the year 41 148 8 197Disposal (19) (531) – (550)At 30 June 2005 and1 July 2005 306 241 31 578Charge for the year 48 198 8 254Disposal (16) – – (16)At 30 June 2006 338 439 39 816Net book valueAt 30 June 2006 114 729 44 887At 30 June 2005 118 727 52 897(i)Revaluation of freehold, leasehold land and buildingThe Group and the Company have engaged CB Richard Ellis, W.M. Malik & Kamaruzaman andA.G. Wilkinson & Associates, independent professional valuers, to determine the fair valueof its freehold, leasehold land and building. Fair value is determined by reference to openmarket values on an existing use basis. The date of the valuation was 30 June 2006.82

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)11. Property, plant and equipment (cont’d)If the revalued property, plant and equipment were measured using the cost model, the carryingamounts would be as follows:Group2006 2005$’000 $’000Freehold land 1,020 1,020Freehold buildings 471 619Leasehold land 7,516 5,423Leasehold buildings 11,941 15,56420,948 22,626The Group’s major properties are as follows :LocationDescriptionLand area(sq ft)Tenure(a)No. 22 and 23, Jalan DatoBandar Tunggal, Negeri Sembilan,MalaysiaShop 13,263 Freehold(b)(c)(d)No. 1 SS2/67 SEA Park PetalingJaya, Selangor,MalaysiaNo. 36 and 38 Leech Street,Ipoh, Perak, MalaysiaNo. 2 Jalan Othman Talib,No. 1 Lorong IskandarShah, Ipoh, Perak,MalaysiaShop/hostel 5,216 FreeholdShop/warehouse 5,880 FreeholdWarehouse 4,140 Freehold83

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)11. Property, plant and equipment (cont’d)LocationDescriptionLand area(sq ft)Tenure(e)(f)(g)No. 98 Jalan Idris Kampar, Shop/warehouse 4,600 FreeholdMalaysiaNo. 156 Lebuh Chulia Shop/warehouse 18,800 FreeholdGeorgetown, Pulau Pinang,MalaysiaLot No. LG15, Lower Shop 778 FreeholdGround Floor, The Summit,Subang, Malaysia(h) Unit 77 Block 1,Kompleks Bukit Jambul,MalaysiaShop/office 2,612 Freehold(i)(j)(k)269 South Bridge Road,Singapore265A South Bridge Road,Singapore273 & A South BridgeRoad,SingaporeShop/office 15,048 Lot 99871A – 999 yearsfrom 1 October 1923(816 years remaining);Lot 99869K, 99868A& 99866P – 999 yearsfrom 1 October 1827(820 years remaining)Shop/office 1,408 999 years from1 October 1823(816 years remaining)Shop/office 5,207 999 years from1 October 1823(816 yearsremaining)(l)(m)No. 2 Persiaran 1/118C,Desu Tun Razak IndustrialPark II, Cheras, MalaysiaNo. 4 Persiaran 1/118C,Desu Tun Razak IndustrialPark II, Cheras, MalaysiaFactory 7,200 99 years lease expiry20.3.2085Factory 11,360 99 years lease expiry20.3.208584

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)11. Property, plant and equipment (cont’d)LocationDescriptionLand area(sq ft)Tenure(n)3 rd floor, units B, E & F4 th floor unit F10 th floor, SunviewIndustrialBuilding No. 3 On YipStreet, Chai Wan,Hong KongOffice/factory/laboratory/warehouse47,162 75 years lease from11.1.1963, renewable fora further 75 years(o)Ground Floor, 192 Lai ChiKok RoadShamshuipo, Kowloon,Hong KongShop 617 75 years lease from23.3.1923, renewed fora further 75 years(p)10 Wang Lee Street,Yuen Long Industrial Park,New Territories,Hong KongOffice/factory/laboratory/warehouse78,021 49 years lease from1.2.1998 to 30.6.2047(ii)Certain properties of the Group with net book value of $nil million (2005 : $2.3 million) werepledged for credit facilities (note 22).GroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000(iii)Net book value of property, plant andequipment under hire purchase 900 1,053 729 72785

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)12. Investments in subsidiariesCompany2006 2005$’000 $’000Unquoted shares, at cost 23,965 23,965Less : Impairment loss (2,000) –The subsidiaries at 30 June are :-21,965 23,965Name of companyCountryof incorporationand place ofbusinessPrincipal activitiesPercentage ofequity held bythe Group2006 2005% %# Eu Yan Sang (Singapore)Private LimitedSingaporeDistribution and sale oftraditional Chinese and othermedicines100 100* Eu Yan Sang (Hong Kong)LimitedHong KongManufacturing, processing andsales of traditional Chinesemedicines100 100** Eu Yan Sang (1959)Sendirian BerhadMalaysiaDistribution and sale oftraditional Chinese and othermedicines100 100# Eu Realty (Singapore)Private LimitedSingaporeProperty investment and saleof traditional Chinese andother medicines100 100** Weng Li Sendirian Berhad Malaysia Commission agent in all kindsof pharmaceutical productsand manufacturer of medicalpills and capsules100 10086

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)12. Investments in subsidiaries (cont’d)Name of companyCountryof incorporationand place ofbusinessPrincipal activitiesPercentage ofequity held bythe Group2006 2005% %** Eu Yan Sang Heritage SdnBhd.MalaysiaProperty investment andprovision of managementservices100 100# Eu Yan Sang MarketingPrivate Limited* EYS Medical ServicesLimited# Eu Yan Sang Australia PtyLtd# EYS KangHong Herbal PteLtdSingapore Distribution of herbal products 100 100Hong Kong Dormant 100 100Australia Investment holding 100 100Singapore Dormant 100 100# Red White & Pure Pte.Ltd. (formerly knownas Applied BiomedicalInternational Pte Ltd)SingaporeProvision of laboratory testingservices and processing,sales of bottled birds nests &investment holding100 100** Degree Achievement Sdn.Bhd.Malaysia Property investment 100 100# Eu Yan Sang IntegrativeHealth Pte LtdSingaporeProvision of integrative medicalservices100 100# Yin Yang Spa ProductsPte LtdSingaporeDevelopment, manufacturingand distribution of spaproducts.100 10087

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)12. Investments in subsidiaries (cont’d)Name of companyCountryof incorporationand place ofbusinessPrincipal activitiesPercentage ofequity held bythe Group2006 2005% %Held by subsidiaries# EYS Ventures Pte Ltd Singapore Dormant 100 100++ RWP Food Services PteLtd* Eu Yan Sang (ChinaVentures) LimitedSingapore Food & beverages 100 –Hong Kong Investment holding 100 100* Synco (H.K.) Limited Hong Kong Manufacturing, processing andsale of western pharmaceuticalproducts* Tot Lot Limited Hong Kong General trading and provisionof advertising agency– 100100 100* Eu Yan Sang (Properties)Limited* Eu Yan Sang (Export)LimitedHong Kong Property investment 100 100The British Dormant 100 100Virgin Islandss# Aroma Fresh Pty Ltd Australia Manufacture, sell anddistribute natural soap andskincare products51 51# YourHealth Manly PtyLimitedAustraliaProvision of integrative medicalservices78.7 64# YourHealth Group PtyLimitedAustraliaInvestment holding andprovision of managementservices78.7 64# YourHealth Edgecliff PtyLimitedAustraliaProvision of integrative medicalservices78.7 6488

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)12. Investments in subsidiaries (cont’d)Countryof incorporationand place ofName of company businessPrincipal activitiesPercentage ofequity held bythe Group2006 2005% %# YourHealth Carina PtyLimitedAustraliaProvision of integrative medicalservices78.7 64# YourHealth CamberwellPty LimitedAustraliaProvision of integrative medicalservices78.7 64# YourHealth Wellness PtyLtd (formerly known asDesana YourHealth PtyLimited)Australia Dormant – 64# Botanical HealthResources, Inc.United Statesof AmericaSales and distribution ofspecialty teas and tonics100 77.2+ Eu Yan Sang (Thailand)LimitedThailandImport, distribution and sale oftraditional Chinese and othermedicine79.4 79.4++ Eu Yan Sang (Macau)LimitedMacauSales of traditional Chinesemedicine and other medicalproducts100 –++ Eu Yan Sang Trading(Guangdong) Co, LtdChinaWholesale, import and exportof tea leaves100 –++ PT EYS VenturesIndonesiaIndonesia Dormant 100 100# Audited by Ernst & Young, Singapore* Audited by Ernst & Young, Hong Kong** Audited by Ernst & Young, Malaysia+ Audited by EX-CL Consulting Business Co., Ltd++ Not required to be audited by law of country of incorporations During the financial year, these subsidiaries ceased operation and became dormant.89

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)12. Investments in subsidiaries (cont’d)Disposal of a subsidiaryThe Group disposed Synco (H.K) Limited, a wholly owned subsidiary, on 30 June 2006 at$5,100,000. The disposal consideration was fully settled in cash.The value of assets and liabilities of Synco (H.K.) Limited recorded in the consolidated financialstatements as at 30 June 2006, and the cash flow effect of the disposal were:2006$’000Property, plant and equipment 3,098Inventories 1,069Trade and other receivables 996Cash and cash equivalents 2495,412Trade and other payables (2,812)Tax payable (153)Deferred tax liabilities (239)Carrying value of net assets 2,208Gain on disposal 3,141Total consideration 5,349Cash and cash equivalents of the subsidiary (249)Net cash inflow on disposal of a subsidiary 5,10013. Investments in associated companiesGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Unquoted shares, at cost 96 96 – –Share of post-acquisition losses ofassociated companies (43) (45) – –Impairment loss (51) (51) – –Currency alignment (2) – – –– – – –90

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)13. Investments in associated companies (cont’d)The associated companies as at 30 June are :Countryof incorporationand place ofName of company businessPrincipal activitiesPercentage ofequity held bythe Group2006 2005% %Held by a subsidiary company* Chengdu Hua ShengHeEnterprise CompanyPeople’sRepublic ofChinaDevelopment of scientific-basedherbal medicine50 50# Orion Corporate HealthPty LtdAustraliaProvision of corporate healthservices39 26* Audited by Sze Chuan Heng De Certified Public Accountants.# Audited by Ernst & Young, SingaporeThe summarised financial information of the associated companies are as follows :Group2006 2005$’000 $’000Assets and liabilities :Current assets 11 5Non-current assets 1 2Total assets 12 7Current liabilities 4 2Non-current liabilities 3 5Total liabilities 7 7Results :Revenue 24 18Profit/(loss) for the year 6 (18)91

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)14. Long term investmentsGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Available-for-sale financial assetsUnquoted shares, at cost 5,978 4,303 4,300 4,300Impairment loss (4,300) (4,300) (4,300) (4,300)1,678 3 – –15. Investment propertiesGroup2006 2005$’000 $’000Balance at beginning of the year 8,670 8,670Gains from fair value adjustments recognised in the :- profit and loss account 8 8- asset revaluation reserve 660 –- depreciation (8) (8)Transfer from owner occupied properties 523 –Transfer to owner occupied properties (3,818) –Balance at end of the year 6,035 8,670Investment properties are stated at fair value, which had been determined based on valuationas at 30 June 2006 performed by registered independent appraisers having an appropriaterecognised professional qualification and recent experience in the location and category of theproperties being valued. The valuations were arrived at by reference to market evidence oftransaction prices for similar properties.As disclosed in Note 3, the property rental income earned by the Group for the financial yearended 30 June 2006 from its investment properties, all of which are leased under operatingleases, amounted to $272,000 (2005 : $294,000). Direct operating expenses (including repairsand maintenance) arising on the rental earning investment properties amounted to $118,000(2005 : $123,000).92

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)15. Investment properties (cont’d)The investment properties held by the Group as at 30 June are as follows:Description Tenure of land Fair value2006 2005$’000 $’000265B&C South Bridge Road,Singapore273B&C South Bridge Road,Singapore999 years lease from 1 October1823 (816 years remaining) 2,551 3,100999 years lease from 1 October1823 (816 years remaining) 2,740 5,350Lot B1-36 Lower Ground Floor,Skudai Parade Johor Bahru,Malaysia Freehold 221 220Unit C 2 nd Floor, Sunview IndustrialBuilding, No. 3 On Yip Street, ChaiWan, Hong Kong75 years lease from 1 January 1963(32 years remaining) 523–6,035 8,67016. GoodwillGroup2006 2005$’000 $’000At costBalance at beginning of the year 656 6,510Goodwill arising from subscription of additional shares in asubsidiary company 376 –Adjustment due to subsequent adjustment to purchaseconsideration for acquisition of medical practice – (64)Effect of adopting FRS 103- reclassified from accumulated amortisation – (4,331)Impairment of goodwill (376) (1,501)Currency realignment (32) 42Balance at end of the year 624 656Accumulated amortisationBalance at beginning of the year – (4,331)Effect of adopting FRS 103- reclassified to cost – 4,331Balance at end of the year – –Net carrying value at end of the year 624 65693

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)16. Goodwill (cont’d)Goodwill acquired through business combinations have been allocated to the cash-generatingunits, namely Eu Yan Sang Australia Pty Ltd and Eu Yan Sang Integrative Health Pte Ltd, forimpairment testing. The recoverable amount of goodwill arising from the business acquisitionis determined based on a value-in-use calculation using cash flow projections based on financialbudgets approved by senior management covering a 5 years period.The discount rate applied to the cash flow projections is 6%. The growth rate used to extrapolatethe cash flows is 6%. Management determined the budgeted growth rate based on pastexperience and its expectation for market development. The discount rate used is pre-tax andreflect specific risk relating to the subsidiaries.17. Intangible assetsIntangible assets represent patents and trademarks stated at purchased cost less accumulatedamortisation.Group2006 2005$’000 $’000At cost :Balance at beginning of the year 283 519Additions during the year 31 40Write off during the year – (262)Currency realignment 15 (14)Balance at end of the year 329 283Accumulated amortisation :Balance at beginning of the year 50 232Charge during the year 19 35Write off during the year – (210)Currency realignment (3) (7)Balance at end of the year 66 50Net carrying value at end of year 263 23394

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)18. InventoriesGroup2006 2005$’000 $’000At cost :Raw materials 1,979 2,390Work-in-progress 3,015 2,261Packaging materials 285 967Finished goods 13,435 10,10518,714 15,723At net realisable value :Finished goods 14,587 15,432Inventories stated at lower of cost and net realisable value 33,301 31,155Finished goods are stated after deducting provision for stockobsolescence of 223 1,28519. Trade receivablesTrade receivables 7,784 9,611Allowance for doubtful receivables (581) (670)7,203 8,941Trade receivables are non-interest bearing and are generally on 30 to 90 days’ terms. Theyare recognised at their original invoice amounts which represents their fair values on initialrecognition.As at 30 June 2006, the composition of trade receivables held in foreign currencies by theGroup is as follows SGD : 8% (2005 : 8%), USD : 2% (2005 : 1%), HKD : 69% (2005 : 77%),AUD : 3% (2005 : 4%) and MYR : 18% (2005 : 10%).95

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)20. Other receivablesGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Sundry deposits 7,298 5,059 105 1Prepaid expenses 525 1,012 42 30Tax recoverable 205 112 – 106Sundry receivables 104 471 6 1718,132 6,654 153 308Allowance for doubtful receivables (1) (170) – (170)8,131 6,484 153 13821. Amounts due from subsidiariesCompany2006 2005$’000 $’000Amounts owing by subsidiaries 31,907 29,269SGD loans to subsidiaries (unsecured)(i) Bears interest at 4.0% per annum and repayable over 4 yearscommencing March 2006 267 707(ii) Bears interest at 4.0% per annum and repayable over 4 yearscommencing July 2006 1,176 1,286(iii) Bears interest at 6.0% per annum and repayable over 4 yearscommencing July 2005 – 186(iv) Bears interest at 6% per annum and repayable over 4 yearscommencing July 2006 2,654 1,704(v) Bears interest between 2.6% to 7.0% (2005 : 1.9% to 7.0%)per annum and have no fixed terms of repayment 9,705 6,47645,709 39,628Allowance for doubtful receivables (268) (268)45,441 39,360Made up of:Current 32,664 29,189Non-current 12,777 10,17145,441 39,360The amounts owing by subsidiaries are unsecured, interest-free and have no fixed terms ofrepayment.96

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)22. Interest bearing loans and borrowingsGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Current:SGD Bank overdraft, secured (note 31) – 18 – –Fixed rate loansSGD bank loan, secured 3,180 1,200 3,080 1,200SGD bank loans, unsecured 7,490 1,140 7,490 1,140Floating rate loansUSD bank loan, secured 1,593 1,673 – –AUD bank loan, secured 1,000 1,093SGD bank loans, secured 7,300 – 7,300 –SGD bank loans, unsecured 800 6,350 800 5,55021,363 11,474 18,670 7,890Non-current:SGD bank loan, secured – 7,000 – 7,000Total 21,363 18,474 18,670 14,890The loans and borrowings bear interest between 3.9% to 9.8% (2005 : 1.9% to 7.6%) perannum, and are secured by certain properties of the Group and corporate guarantee issued bythe Company.The interest rates of floating rate loans reprice at 0.75% to 4.75% per annum over respectivebanks’ prime rates or cost of fund. The current borrowings of the Group and the Company haveaverage maturities of 6 months from the end of the financial year.23. PayablesTrade payablesAs at 30 June 2006, the composition of trade payables held in foreign currencies by the Groupis as follows: SGD: 45% (2005: 43%), HKD: 26% (2005: 33%), MYR: 20% (2005: 16%), AUD:7% (2005: 7%) and USD: 2% (2005: 1%)97

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)23. Payables (cont’d)Other payablesGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Accrued expenses 5,874 2,513 590 304Sundry provisions 2,489 3,975 813 377Sundry payables 888 1,350 13 13Amount due to directors of subsidiaries – 29 – –9,251 7,867 1,416 69424. Hire purchase creditorsPresentvalue ofpaymentsPresentvalue ofpaymentsMinimumpaymentsMinimumpayments2006 2006 2005 2005$’000 $’000 $’000 $’000GroupWithin one year 249 213 248 213After one year but not more than five years 642 560 679 597After five years 78 62 77 67Total minimum lease payments 969 835 1,004 877Less: Amounts representing financecharges (134) – (127) –Present value of minimum lease payments 835 835 877 877CompanyWithin one year 141 120 109 95After one year but not more than five years 449 382 372 324After five years 78 64 77 67Total minimum lease payments 668 566 558 486Less: Amounts representingfinance charges (102) – (72) –Present value of minimum lease payments 566 566 486 486The average discount rate implicit in the Group’s and the Company’s hire purchases ranges from2.2% to 6.7% (2005 : 2.2% to 6.7%) and 2.2% to 3.5% (2005 : 2.2% to 2.9%) per annumrespectively.25. Long term loans from minority shareholders of subsidiaries98Long term loans from minority shareholders of subsidiaries are unsecured, interest-free and arenot expected to be repaid in the foreseeable future.

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)26. Deferred tax assetsGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Balance at beginning of the year – – – –Amount credit to asset revaluationreserves (98) – – –Transfer to profit and loss 357–– –Balance at end of the year 259–– –27. Deferred tax liabilitiesBalance at beginning of the year 908 833 18 18Provided/(writeback) during the year 443 (44) – –Transfer to profit and loss 27 – – –Amount credited to assetrevaluation reserve 299 136 – –Disposal of subsidiary (239) – – –Currency realignment 26 (17) – –Balance at end of the year 1,464 908 18 18The deferred taxation arises as a result of excess of net book value over tax written down valueof property, plant and equipment.28. Share capitalGroup and Company2006 2005$’000 $’000Issued and fully paid :At beginning of year286,593,158 (2005 : 285,673,158) ordinary shares 14,330 14,284Bonus issue during the year71,822,030 (2005 : nil) ordinary shares 3,591Capitalisation of share premium 16,819Issued during the year1,883,750 (2005 : 920,000) ordinary shares 132At end of year360,298,938 (2005 : 286,593,158) ordinary shares 34,872 14,330––4699

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)28. Share capital (cont’d)The holders of ordinary shares are entitled to receive dividends as and when declared by theCompany. All ordinary shares carry one vote per share without restriction.On 30 January 2006, in accordance with the Singapore Companies (Amendment) Act 2005, theconcepts of “par value” and “authorised capital” were abolished and on that date, the shares ofthe Company ceased to have a par value.29. ReservesGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Share premium reserve – 20,098 – 20,098Asset revaluation reserve 7,258 3,152 – –Capital reserve 453 453 – –Share option reserve 99 – 99 –Foreign currency translation reserve (4,447) (3,422) – –Revenue reserve 40,953 32,148 13,163 14,347Total reserve 44,316 52,429 13,262 34,445Made up of :Distributable reserves 40,953 32,148 13,163 14,347Non-distributable reserves 3,363 20,281 99 20,09844,316 52,429 13,262 34,445Company2006 2005$’000 $’000Revenue reserveBalance at beginning of the year 14,347 7,980Profit for the year 4,562 9,938Dividend paid (5,746) (3,571)Balance at end of the year 13,163 14,347100

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)30. Employee benefitsGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Staff cost (including executive directors)- salaries, bonuses and other costs 27,068 25,693 3,443 2,145- Staff Provident Fund 1,806 1,493 109 8628,874 27,186 3,552 2,231Under the Eu Yan Sang Employees Share Option Scheme (“ESOS”) the following options tosubscribe for ordinary shares in the Company’s share capital, exercisable at any time during thedates indicated below, were outstanding as at 30 June 2006 :Date of grantAs at1.7.2005Numberof optionsgrantedNumberof optionsexpiredNumberof optionslapsedAdjustedfor bonusissue at11.11.2005Numberof optionsexercised At 30.6.2006Exerciseprice pershare$Exercisableperiod18.3.2002 636,000 – – – 84,000 (720,000) – 0.224 18.3.2003to 17.3.201231.3.2003 380,000 – – – 95,000 – 475,000 0.350 31.3.2004to 30.3.201331.3.2003 1,340,000 – – – 236,250 (1,163,750) 412,500 0.212 31.3.2004to 30.3.201315.12.2005 – 3,745,000 – – – – 3,745,000 0.534 15.12.2006to 14.12.20152,356,000 3,745,000 – – 415,250 (1,883,750) 4,632,500In the above table, adjustments were made to the exercise price and number of share optionsgranted under the ESOS with effect from 11.11.2005, upon the bonus issue of shares onthe basis of one (1) bonus share for every four (4) ordinary shares held in the capital of theCompany.Fair value of share optionsThe fair value of services rendered in return for share options granted are measured by referenceto the fair value of share options granted under the ESOS. The estimate of the fair value of theservices received is measured based on a black-scholes model, taking into account the termsand conditions upon which the share options were granted. The following table states theinputs to the model used. The expected volatility reflects to assumptions that the historicalvolatility is indicative of future trends, which may also not necessarily be the actual outcome.101

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)30. Employee benefits (cont’d)The weighted average fair value of options granted during the financial year was $0.02 (2005 :Nil).15.12.2005 grantExpected dividend yield (%) 4.35Expected volatility (%) 17.13Risk-free interest rate (%) 2Expected life of options (years) 4Subscription price ($) 0.534Share price at date of grant ($) 0.55The information on directors participating in the ESOS and employees who receive 5 percent ormore of the total number of options available under the ESOS is as follows :NameAggregateoptions grantedduring thefinancial yearAggregateoptionsgranted sincecommencementof the Schemeto30 June 2006Aggregateoptionsexercised sincecommencementof the Schemeto30 June 2006Aggregateoptionsoutstandingas at 30 June2006DirectorsRichard Yee Ming Eu 280,000 530,000 – 530,000Clifford Yee Fong Eu 250,000 475,000 – 475,000Leslie Kim Loong Mah 200,000 362,500 – 362,500EmployeesAlice Suet Ying Wong 200,000 510,000 (310,000) 200,000Eng Hock Lok 200,000 450,000 (250,000) 200,0001,130,000 2,327,500 (560,000) 1,767,500102

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)31. Cash and cash equivalentsCash and cash equivalents included in the consolidated statement of cash flows comprise thefollowing balance sheet amounts :Group2006 2005$’000 $’000Cash and bank balances 8,070 9,418Bank overdrafts (note 22) – (18)Fixed bank deposits 8,650 3,63416,720 13,03432. Commitments(a) Capital commitmentsThe following are commitments for capital expenditure that have not been provided for inthe financial statements :Group2006 2005$’000 $’000Authorised and contracted for – 195Authorised and not contracted for 3,973 –(b) Operating lease commitments – As lessorThe Group has entered into commercial property leases on its investment property portfolioas disclosed in Note 15. These non-cancellation leases have remaining non-cancellablelease terms of between 1 and 5 years.Future minimum lease payment receivable under non-cancellable operating leases as at 30June are as follows:Group2006 2005$’000 $’000Within one year 200 272After one year but not more than 5 years 88 71288 343103

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)32. Commitments (cont’d)(c) Operating lease commitments – As lesseeRental expense for retail outlets of the Group was $17,078,000 (2005 : $14,376,000)for the year. Future minimum lease rental under non-cancellable leases as of 30 June areas follows:GroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Within one year 13,155 11,426 – –After one year but not more than5 years 14,234 10,461 – –27,389 21,887 – –33. Related party transactions(a) Sale and purchase of goods and servicesThe Company and the Group have the following transactions with subsidiaries and relatedparties at rates and terms agreed between the parties :GroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Dividend income from subsidiarycompanies – – 10,655 11,651Interest received from subsidiarycompanies – – 478 392Management fee received fromsubsidiaries – – 6,825 5,691Rental paid to a subsidiary company – – 169 167Interest paid to subsidiary – – 5 –Loan from subsidiary – – 3,166 –104

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)33. Related party transactions (cont’d)(b) Compensation of key management personnelGroup2006 2005$’000 $’000Short-term employee benefits pension and post-employmentmedical benefits 3,382 2,409Share-based payments 99 –Total compensation paid to key management personnel 3,481 2,409Comprise amounts paid to :• Directors of the Company 1,111111 846• Other key management personnel 2,370 1,5633,481 2,40934. Contingent liabilitiesGroupCompany2006 2005 2006 2005$’000 $’000 $’000 $’000Contingent liabilities not providedin the financial statements :Corporate guarantees given to bankers forcredit facilities granted to subsidiaries – – 14,748 8,803As at 30 June 2006, $1,793,000 (2005 : $2,110,000) of the credit facilities were utilised bythe Group.35. Segment reportingThe Company’s operating businesses are organised and managed separately according to thenature of products and services provided, with each segment representing a strategic businessunit that offers different products and services. TCM relates to manufacturing, processingand sales of traditional Chinese medicines, Prescription/OTC relates to the manufacturing andsales of western pharmaceutical products, Clinics relates to the provision of traditional Chinesemedical consultation, treatment and integrative medical services. Others segment include theprovision of rental of premises, laboratory testing services and management services.Segment accounting policies are the same as the policies described in Note 2. The Groupgenerally account for inter-segments sales and transfers as if the sales or transfers were tothird parties at current market prices.105

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)35. Segment reporting (cont’d)The following tables present revenue and net income information for the Group’s industrysegment for the years ended 30 June 2005 and 30 June 2006 and certain asset and liabilityinformation regarding the Group’s industry segment as at 30 June 2005 and 30 June 2006 :Business segments2006RevenueDiscontinuedContinuing operationsoperationTCM Clinics OthersEliminationsTotalPrescription/OTCTotaloperations$’000 $’000 $’000 $’000 $’000 $’000 $’000Sales to externalcustomers 149,593 20,230 3,624 – 173,447 6,974 180,421Inter-segment sales 5,248 – 17,726 (22,974) – – –Total revenue 154,841 20,230 21,350 (22,974) 173,447 6,974 180,421ResultsOperating profits 23,981 1,830 12,264 (18,078) 19,997 1,004 21,001Foreign exchange gain 126 36 162Foreign exchange loss (1,465) – (1,465)Interest income 202 – 202Interest expense (940) – (940)Impairment of goodwill (376) – (376)Surplus on revaluation ofland and buildings (8) – (8)Share of associatedcompanies’ results 2 – 2Profit before taxation 17,538 1,040 18,578Tax expense (4,008) (149) (4,157)Profit after taxation 13,530 891 14,421Assets and liabilitiesSegment assets 101,626 4,020 20,006 – 125,652 – 125,652Deferred tax assets 259 – 259125,911 – 125,911Segment liabilities 14,981 3,219 23,178 – 41,379 – 41,379Unallocated liabilities 5,344 – 5,34446,723 – 46,723106Other segment information :Capital expenditure 14,077 857 489 – 15,423 – 15,423Depreciation of property,plant and equipment 3,149 640 2,048 – 5,837 535 6,372Impairment of goodwill – – 376 – 376 – 376

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)35. Segment reporting (cont’d)DiscontinuedContinuing operationsoperationTCM Clinics OthersEliminationsTotalPrescription/OTCTotaloperations$’000 $’000 $’000 $’000 $’000 $’000 $’000Business segments2005RevenueSales to externalcustomers 136,933 18,353 4,326 – 159,612 6,277 165,889Inter-segment sales 8,772 – 17,827 (26,599) – – –Total revenue 145,705 18,353 22,153 (26,599) 159,612 6,277 165,889Operating profits 21,927 1,454 11,471 (17,358) 17,494 925 18,419Foreign exchange gain – 24 24Foreign exchange loss (164) – (164)Interest income 44 6 50Interest expense (699) – (699)Impairment of goodwill (1,501) – (1,501)Impairment loss oninvestments in anassociated company (51) – (51)Surplus on revaluation ofland and buildings 391 – 391Share of associatedcompanies’ results (9) – (9)Profit before taxation 15,505 955 16,460Tax expense (3,958) (93) (4,051)Profit after taxation 11,547 862 12,409Assets and liabilitiesSegment assets 75,739 4,470 17,602 – 97,811 10,885 108,696Segment liabilities 11,215 3,473 19,200 – 33,888 3,204 37,092Unallocated liabilities 4,833 – 4,83338,721 3,204 41,925Other segment information :Capital expenditure 11,183 461 824 – 12,468 168 12,636Depreciation of property,plant and equipment 4,003 782 608 – 5,393 515 5,908Impairment of goodwill – – 1,501 – 1,501 – 1,501107

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)36. Financial risk management objectives and policiesThe Group’s operations carry financial risks, including the effects of changes in foreign exchangerates and interest rates. The Group’s overall risk management approach is to minimise theeffects of such volatility on its financial performance.Financial risk management policies are periodically reviewed and approved by the Board ofDirectors.Foreign currency riskThe Group has transactional currency exposure, which arise from the sales or purchases by theCompany and its subsidiaries in those currencies other than their functional currencies. Besides,the Group is also exposed to translational risks arising from its foreign currency denominatedassets and liabilities.The Group manages its transactional exposure by matching, as far as possible, its receipts andpayments in each individual currencies. The Group does not use any foreign currency instrumentsto hedge foreign currency exposure on such purchases and sales.As further disclosed in Note 2.5 to the financial statements on foreign currencies, exchangedifferences on the Group’s net investment in foreign subsidiaries are dealt with through theforeign currency translation reserve. This currency translation risk is regularly monitored.The breakdown of foreign currencies risk by currency was disclosed in the notes to the financialstatements when appropriate.Interest rate riskThe Group obtains additional financing through bank borrowings and leasing arrangements. TheGroup’s policy is to obtain the most favourable interest rate available in the market.The Group’s earnings are affected by changes in interest rates due to the impact that suchchanges have on its interest income from short-term deposits, and its interest expense on thebank borrowings.Interests on financial instruments subject to floating interest rates are contractually repricedregularly. Interest on financial instruments at fixed rates is fixed until the maturity of theinstruments. The other financial instruments of the Group and the Company that are not includedin the tables below are not subject to interest rate risks.108

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)36. Financial risk management objectives and policies (cont’d)The following tables set out the carrying amount, by maturity, of the Group’s and the Company’sfinancial instruments that are exposed to interest rate risk:MoreWithin 1year1-2years2-3years3-4years4-5yearsthan 5years Total$’000 $’000 $’000 $’000 $’000 $’000 $’0002006GroupFixed rateBank loans 10,670 – – – – – 10,670Floating rateCash assets 16,720 – – – – – 16,720Bank loans 10,693 – – – – – 10,693CompanyFixed rateAmounts due fromsubsidiaries 1,025 1,025 1,025 1,022 – 9,705 13,802Bank loans 10,670 – – – – – 10,670Floating rateCash assets 377 – – – – – 377Bank loans 8,100 – – – – – 8,100109

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)36. Financial risk management objectives and policies (cont’d)2005GroupWithin 1year1-2years2-3years3-4years4-5yearsMorethan 5years Total$’000 $’000 $’000 $’000 $’000 $’000 $’000Fixed rateBank loans 2,340 – – – – – 2,340Floating rateCash assets 13,052 – – – – – 13,052Bank overdrafts 18 – – – – – 18Bank loans 9,116 7,000 – – – – 16,116CompanyFixed rateAmounts due from186 925 925 925 – 7,396 10,357subsidiariesBank loans 2,340 – – – – – 2,340Floating rateCash assets 586 – – – – – 586Bank loans 5,550 7,000 – – – – 12,550110

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)36. Financial risk management objectives and policies (cont’d)Counterparty riskThe Group’s maximum exposure to credit risk in the event that counterparties fail to performtheir obligations as at 30 June 2006 in relation to each class of recognised financial assets,other than derivatives, is the carrying amount of those assets as indicated in the balancesheet.The Group only transacts with creditworthy counterparties. Surplus funds are placed withreputable financial institutions. Counterparty risks are managed by limiting aggregate exposure onall outstanding financial instruments to any individual counterparty, taking into account its creditrating. Such counterparty exposures are regularly reviewed, and adjusted as necessary. Thismitigates the risk of material loss arising in the event of non-performance by counterparties.Concentrations of credit risk exist when changes in economic, industry or geographical factorssimilarly affect the group of counterparties whose aggregate credit exposure is significant inrelation to the Group’s total credit exposure. As the Group transacts with a diversity ofcounterparties in different countries, the Group does not have any significant exposure to anyindividual customers.Liquidity riskAs at 30 June 2006, the Group had at its disposal, cash and short-term deposits amounting toapproximately $16,720,000 (2005 : $13,052,000) to finance its operations.The Group’s holdings of cash and short-term deposits, together with non-committed fundingfacilities and net cash flow from operations, are expected to be sufficient to cover the cost ofall capital expenditure due in the next financial year.Fair valuesThe fair values of financial instrument is the amount at which the instrument could be exchangedor settled between knowledgeable and willing parties in an arm’s length transaction, other thanin a forced or liquidation sale.Financial instruments not carried at fair valueThe carrying value of the unquoted equity investment held as long term investments is statedat cost of $1,678,000 (2005: $3,000) because the fair value cannot be obtained directly frommarket price or indirectly using valuation techniques supported by observable market data. Thefair value of this investment is expected to be above its carrying values.The amount due from subsidiaries and long term loans from minority shareholders of subsidarieshave no repayment terms. Accordingly, the fair values of the amounts are not determinable asthe timing of the future cash flows cannot be estimated reliably.Financial instruments whose carrying amounts approximate fair valueManagement has determined that the carrying amounts of cash and bank balances, trade andother receivables, trade and other payables and due to bankers, based on their notional amounts,reasonably approximate their fair values because these are mostly short term in nature or arerepriced frequently.111

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s (cont’d)30 June 2006(In Singapore dollars)37. Events after the balance sheet date(a) Pursuant to the Shareholders Agreement dated 16 October 2001 entered into by theCompany and Sichuan Kang Hong Medicine Trading Limited (“Sichuan Kang Hong”), on 31July 2006, EYS KangHong Herbal Pte Ltd, a wholly-owned subsidiary, (“EYS KangHong”)has allotted 14,998 and 15,000 new shares at a consideration of $1.00 per shares tothe Company and Sichuan Kang Hong respectively. Following the allotment of new shares,the Company’s equity interest in EYS KangHong decreased to 50%.(b) On 21 August 2006, the Company subscribed an additional 900,000 shares at $1.00each, at a total cash consideration of $900,000 in Red White & Pure Pte Ltd (“RedWhite & Pure”) for additional working capital. Following the subscription of new shares, theCompany’s equity investment in Red White & Pure increased to $1 million.38. ComparativesCertain comparatives have been reclassified to conform with current year’s presentation asfollows:GroupPreviouslyRestated2005reported2005$’000 $’000Consolidated balance sheetProperty, plant and equipment 39,502 48,172Investment properties 8,670 –Interest bearing loans and borrowings- current 11,474 10,381- non current 7,000 8,093Consolidated profit and loss accountRevenue 159,612 165,889Cost of sales (80,177) (84,062)Distribution and selling expenses (46,404) (46,980)Administrative expenses (15,844) (16,680)Other operating expenses (480) (487)Foreign exchange loss (164) (188)Interest income 44 50Tax expense (3,958) (4,051)Profit from discontinued operation 862 –39. Authorisation of financial statements for issueThe financial statements of Eu Yan Sang International Ltd and its Subsidiaries for the financialyear ended 30 June 2006 were authorised for issue in accordance with a resolution of theDirectors on 15 September 2006.112

S H A R E H O L D E R S ’ I N F O R M A T I O NAs At 12 September 2006Class of equity securities Number of equity securities Voting RightsOrdinary shares 360,298,938 One vote for each shareSTATISTICS OF SHAREHOLDINGSSize of ShareholdingNumber ofShareholders %Number ofShares %1 - 999 125 3.10 39,847 0.011,000 - 10,000 3,148 78.06 7,621,429 2.1210,001 - 1,000,000 728 18.05 38,922,186 10.801,000,001 and above 32 0.79 313,715,476 87.074,033 100.00 360,298,938 100.00SUBSTANTIAL SHAREHOLDERS(As recorded in the Register of Substantial Shareholders)Direct Interest % Deemed Interest %Euco Investments Pte Ltd (“Euco”) 26,086,767 7.24 42,652,500 (i) 11.84Bestand Development Corporation- - 27,463,535 (ii) 7.62(“Bestand”)Aberdeen Asset Management Asia Ltd- - 24,702,500 (iii) 6.86(“AAMA”)Aberdeen International Fund Managers- - 19,905,000 (iv) 5.52Limited (“AIFM”)Aberdeen Asset Management Plc- - 24,702,000 (v) 6.86(“AAM”)Clifford Yee Fong Eu 7,190,743 1.99 78,739,267 (vi) 21.85Laurence Yee Lye Eu 1,875,000 0.52 68,739,267 (vii) 19.08Richard Yee Ming Eu - - 52,945,143 (viii) 14.69Robert James Yee Sang Eu - - 27,463,535 (ix) 7.62Billy Wah Yan Ma - - 31,187,107 (x) 8.66113

S H A R E H O L D E R S ’ I N F O R M A T I O NAs At 12 September 2006Notes:(i)(ii)(iii)(iv)(v)(vi)Euco’s deemed interests relates to shares held in trust by its nominees.Bestand’s deemed interests relates to shares held in trust by its nominee.AAMA’s deemed interest relates to Shares held in various investment funds (and under variousnominee accounts).AIFM’s deemed interest relates to Shares held in various investment funds (and under variousnominee accounts).AAM’s deemed interest relates to Shares held in various investment funds (and under variousnominee accounts).By virtue of Section 7 of the Companies Act, Clifford Yee Fong Eu is deemed to be interested inall the 2,500,000 Shares held in trust by his nominees, 68,739,267 Shares held by Euco (byitself or in trust by its nominees); 5,625,000 Shares of Perpetual Investments Ltd (held in trustby its nominee), 1,875,000 Shares owned by his wife(vii) Laurence Yee Lye Eu is deemed interested in all the Shares held by Euco by virtue of Section 7of the Companies Act.(viii)(ix)(x)The deemed interests of Richard Yee Ming Eu relates to Shares held in trust by his nominees.He is also deemed to be interested in 14,750,000 Shares owned by his wife (held in trust by hernominees).Robert James Yee Sang Eu is deemed to be interested in all the Shares held by Bestand byvirtue of Section 7 of the Companies ActBy virtue of Section 7 of the Companies Act, Billy Wah Yan Ma is deemed to be interested in allthe Shares held by Bestand; 1,381,262 Shares held by TPI Limited; and 2,342,310 Shares heldby Great Expectations Investment Inc114

S H A R E H O L D E R S ’ I N F O R M A T I O NAs At 12 September 2006TWENTY LARGEST SHAREHOLDERSNo. Name of Shareholders Number of Shares %1. HSBC (SINGAPORE) NOMINEES PTE LTD 86,839,050 24.102. HL BANK NOMINEES (S) PTE LTD 27,500,000 7.633. EUCO INVESTMENTS PTE LTD 26,086,767 7.244. DBS NOMINEES PTE LTD 25,309,250 7.025. OVERSEAS UNION BANK NOMINEES PTE LTD 17,740,070 4.926. SOUTHERN NOMINEES (S) SDN BHD 16,250,000 4.517. EU JOSEPH WILLIAM YEE 12,574,955 3.498. DAVID EU YEE TAT 11,523,806 3.209. CITIBANK NOMINEES SINGAPORE PTE LTD 11,022,002 3.0610. EU MEI YING HELENA (MRS HELENA HO) 10,202,056 2.8311. OVERSEAS-CHINESE BANK NOMINEES PRIVATE LIMITED 8,927,500 2.4812. EU YEE FONG CLIFFORD 7,190,743 2.0013. DB NOMINEES (S) PTE LTD 5,625,000 1.5614. EU YEE KWONG GEOFFREY 5,477,667 1.5215. UNITED OVERSEAS BANK NOMINEES PTE LTD 5,046,500 1.4016. HONG LEONG FINANCE NOMINEES PTE LTD 4,611,641 1.2817. FRASER SECURITIES PTE LTD 3,437,500 0.9518. EU KENG IU ROY AND EU YAN WAI HING VIRGINIA 3,089,292 0.8619. CITIBANK CONSUMER NOMINEES PTE LTD 2,713,000 0.7520. GREAT EXPECTATIONS INVESTMENT INC 2,342,310 0.65TOTAL 293,509,109 81.45PERCENTAGE OF SHAREHOLDING IN PUBLIC’S HANDS32.2% of the Company’s shares are held in the hands of public. Accordingly, the Company has compliedwith Rule 723 of the Listing Manual of the SGX-ST.Public is defined in the Listing Manual as persons other than:-(a)(b)directors, chief executive officer, substantial shareholders, or controlling shareholders of theCompany and its subsidiary companies; andassociates of the persons in paragraph (a).115

EU YAN SANG INTERNATIONAL LTD(Company Registration No. 199302179H)(Incorporated in The Republic of Singapore with limited liability)N O T I C E O F A N N U A L G E N E R A L M E E T I N GNOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at NationalLibrary Building - The Pod, Level 16, 100 Victoria Street, Singapore 188064 on Friday, 27 October2006 at 3.00 p.m. for the following purposes:AS ORDINARY BUSINESS1. To receive and adopt the Directors’ Report and the Audited Accounts of the Company for theyear ended 30 June 2006 together with the Auditors’ Report thereon. (Resolution 1)2. To declare a first and final dividend of 1 cent per ordinary share and a special dividend of 1 centper ordinary share (or a total of 2.0 cents per ordinary share) [one-tier tax exempt] for the yearended 30 June 2006 [2005: a first and final dividend of 1 cent per ordinary share and a specialdividend of 1 cent per ordinary share (or a total of 2.0 cents per ordinary share)](Resolution 2)3. To re-elect the following Directors retiring pursuant to Articles 109 and 92 of the Company’sArticles of Association:Dr Jennifer Gek Choo Lee (Retiring under Article 109) (Resolution 3)Mr Malcolm Man-Chung Au (Retiring under Article 109) (Resolution 4)Mr Leslie Kim Loong Mah (Retiring under Article 92) (Resolution 5)Dr Jennifer Gek Choo Lee and Mr Malcolm Man-Chung Au would, upon re-election as Directorsof the Company, remain as members of the Audit Committee and will be considered independentfor the purposes of Rule 704(8) of Listing Manual of the Singapore Exchange Securities TradingLimitedMr Leslie Kim Loong Mah will be considered non-independent for the purposes of Rule 704(8) ofListing Manual of the Singapore Exchange Securities Trading Limited.4. To pass the following Ordinary Resolution pursuant to Section 153(6) of the Companies Act, Cap.50:-That pursuant to Section 153(6) of the Companies Act, Cap. 50, Mr Joseph William Yee Eu bere-appointed a Director of the Company to hold office until the next Annual General Meeting. [seeExplanatory Note (i)](Resolution 6)5. To approve the payment of Directors’ fees of S$160,000 for the year ending 30 June 2007, tobe paid quarterly in arrears. (2006: S$ 157,500). (Resolution 7)6. To re-appoint Messrs Ernst & Young as the Company’s Auditors and to authorise the Directorsto fix their remuneration. (Resolution 8)7. To transact any other ordinary business which may properly be transacted at an Annual GeneralMeeting of which due notice shall have been given.116

N O T I C E O F A N N U A L G E N E R A L M E E T I N G (cont’d)AS SPECIAL BUSINESSTo consider and if thought fit, to pass the following resolution as Ordinary Resolution, with or withoutany modifications:8. Authority to allot and issue shares up to 50 per centum (50%) of issued shares in thecapital of the CompanyThat pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the ListingManual of the Singapore Exchange Securities Trading Limited, the Directors be authorised andempowered to :(a) (i) issue shares in the Company (“shares”) whether by way of rights, bonus or otherwise;and/or(ii)make or grant offers, agreements or options (collectively, “Instruments”) that mightor would require shares to be issued, including but not limited to the creation and issueof (as well as adjustments to) options, warrants, debentures or other instrumentsconvertible into shares,at any time and upon such terms and conditions and for such purposes and to suchpersons as the Directors may in their absolute discretion deem fit; and(b)(notwithstanding the authority conferred by this Resolution may have ceased to be in force)issue shares in pursuance of any Instrument made or granted by the Directors while thisResolution was in force,provided that the aggregate number of shares (including shares to be issued in accordance withthe terms of convertible securities issued, made or granted pursuant to this Resolution) to beallotted and issued pursuant to this Resolution shall not exceed fifty per centum (50%) of theissued shares in the capital of the Company at the time of the passing of this Resolution , ofwhich the aggregate number of shares and convertible securities to be issued other than on apro rata basis to all shareholders of the Company shall not exceed twenty per centum (20%) ofthe issued shares in the capital of the Company and that such authority shall, unless revokedor varied by the Company in a general meeting, continue in force (i) until the conclusion of theCompany’s next Annual General Meeting or the date by which the next Annual General Meetingof the Company is required by law to be held, whichever is earlier or (ii) in the case of sharesto be issued in accordance with the terms of convertible securities issued, made or grantedpursuant to this Resolution, until the issuance of such shares in accordance with the terms ofsuch convertible securities. [See Explanatory Note (ii)](Resolution 9)By Order of the BoardTan Kang Fun @ KF TanSebastian Cher Liang TanCompany SecretariesSingapore, 6 October 2006117

N O T I C E O F A N N U A L G E N E R A L M E E T I N G (cont’d)Notes:1. A Member entitled to attend and vote at the Annual General Meeting (the “Meeting”) is entitledto appoint a proxy to attend and vote in his/her stead. A proxy need not be a Member of theCompany.2. The instrument appointing a proxy must be deposited at the Registered Office of the Company at269A South Bridge Road, Singapore 058818 not less than 48 hours before the time appointedfor holding the Meeting.Explanatory Notes on Ordinary Business to be transacted:-(i)The effect of the Ordinary Resolution 6 proposed in item 4 above, if passed, is to re-appoint MrJoseph William Yee Eu, who is over 70 years old, as a Director of the Company to hold officeuntil the next Annual General Meeting of the Company. Section 153(6) of the Companies Act,Chapter 50 requires the re-appointment to be approved by way of ordinary resolution at theAnnual General Meeting of the Company.Explanatory Notes on Special Business to be transacted:-(ii)The Ordinary Resolution 9 proposed in item 8 above, if passed, will empower the Directors fromthe date of this Meeting until the date of the next Annual General Meeting, or the date bywhich the next Annual General Meeting is required by law to be held or when varied or revokedby the Company in a general meeting, whichever is the earlier, to allot and issue shares, makeor grant instruments convertible into shares and to allot and issue shares pursuant to suchinstruments, up to a number not exceeding, in total, 50% of the issued shares in the capital ofthe Company at the time of the passing of this resolution, of which up to 20% may be issuedother than on a pro-rata basis to shareholdersFor the purpose of this resolution, the percentage of issued shares in the capital of the Companyis based on the issued shares in the capital of the Company at the time this proposed OrdinaryResolution is passed after adjusting for new shares arising from the conversion or exercise ofconvertible securities, the exercise of share options or the vesting of share awards outstandingor subsisting at the time when this proposed Ordinary Resolution is passed and any subsequentconsolidation or subdivision of shares.DIRECTORS’ RESPONSIBILITY STATEMENTThe Directors of the Company collectively and individually accept full responsibility for the accuracyof the information given herein and confirm, having made all reasonable enquiries, that to the best oftheir knowledge and belief there are no other facts the omission of which would make any statementsin this notice misleading.118

(FOR SINGAPORE INCORPORATED LISTED COMPANIES)EU YAN SANG INTERNATIONAL LTDCompany Registration No. 199302179H(Incorporated In The Republic of Singapore)P R O X Y F O R M(Please see notes overleaf before completing this Form)IMPORTANT:1. For investors who have used their CPF monies to buy Eu Yan SangInternational Ltd’s shares, this Report is forwarded to them atthe request of the CPF Approved Nominees and is sent solely FORINFORMATION ONLY.2. This Proxy Form is not valid for use by CPF investors and shall beineffective for all intents and purposes if used or purported to beused by them.3. CPF investors who wish to attend the Meeting as an observer mustsubmit their requests through their CPF Approved Nominees withinthe time frame specified. If they also wish to vote, they must submittheir voting instructions to the CPF Approved Nominees within thetime frame specified to enable them to vote on their behalf.I/We,ofbeing a member/members of Eu Yan Sang International Ltd (the “Company”), hereby appoint:Name NRIC/Passport No. Proportion of ShareholdingsNo. of Shares %Addressand/or (delete as appropriate)Name NRIC/Passport No. Proportion of ShareholdingsNo. of Shares %Addressor failing the person, or either or both of the persons, referred to above, the Chairman of the Meeting asmy/our proxy/proxies to vote for me/us on my/our behalf at the Annual General Meeting (the “Meeting”)of the Company to be held on 27 October 2006 at 3.00 p.m. and at any adjournment thereof. I/Wedirect my/our proxy/proxies to vote for or against the Resolutions proposed at the Meeting as indicatedhereunder. If no specific direction as to voting is given or in the event of any other matter arising atthe Meeting and at any adjournment thereof, the proxy/proxies will vote or abstain from voting at his/herdiscretion. The authority herein includes the right to demand or to join in demanding a poll and to voteon a poll.(Please indicate your vote “For” or “Against” with a tick [√] within the box provided.)No. Resolutions relating to: For Against1 Directors’ Report and Audited Accounts for the year ended 30 June 20062 Payment of proposed first and final dividend of 1 cent per ordinary shareand a special dividend of 1 cent per ordinary share3 Re-election of Dr Jennifer Gek Choo Lee as a Director4 Re-election of Mr Malcolm Man-Chung Au as a Director5 Re-election of Mr Leslie Kim Loong Mah as a Director6 Re-appointment of Mr Joseph William Yee Eu as a Director7 Approval of Directors’ fees amounting to S$160,000 for the year ending30 June 20078 Re-appointment of Messrs Ernst & Young as Auditors and to authorisethe Directors to fix their remuneration9 Authority to allot and issue new sharesDated this day of 20Total number of Shares in:No. of Shares(a) CDP RegisterSignature of Shareholder(s)or, Common Seal of Corporate Shareholder(b) Register of Members*Delete where inapplicable

Notes :1. Please insert the total number of Shares held by you. If you have Shares entered against yourname in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50of Singapore), you should insert that number of Shares. If you have Shares registered in yourname in the Register of Members, you should insert that number of Shares. If you have Sharesentered against your name in the Depository Register and Shares registered in your name in theRegister of Members, you should insert the aggregate number of Shares entered against yourname in the Depository Register and registered in your name in the Register of Members. If nonumber is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to allthe Shares held by you.2. A member of the Company entitled to attend and vote at a meeting of the Company is entitledto appoint one or two proxies to attend and vote in his/her stead. A proxy need not be a memberof the Company.3. Where a member appoints two proxies, the appointments shall be invalid unless he/she specifiesthe proportion of his/her shareholding (expressed as a percentage of the whole) to be representedby each proxy.4. Completion and return of this instrument appointing a proxy shall not preclude a member fromattending and voting at the Meeting. Any appointment of a proxy or proxies shall be deemed tobe revoked if a member attends the meeting in person, and in such event, the Company reservesthe right to refuse to admit any person or persons appointed under the instrument of proxy tothe Meeting.5. The instrument appointing a proxy or proxies must be deposited at the registered office of theCompany at 269A South Bridge Road, Singapore 058818 not less than 48 hours before thetime appointed for the Meeting.6. The instrument appointing a proxy or proxies must be under the hand of the appointor or ofhis attorney duly authorised in writing. Where the instrument appointing a proxy or proxiesis executed by a corporation, it must be executed either under its seal or under the hand ofan officer or attorney duly authorised. Where the instrument appointing a proxy or proxies isexecuted by an attorney on behalf of the appointor, the letter or power of attorney or a dulycertified copy thereof must be lodged with the instrument.7. A corporation which is a member may authorise by resolution of its directors or other governingbody such person as it thinks fit to act as its representative at the Meeting, in accordance withSection 179 of the Companies Act, Chapter 50 of Singapore.General:The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete,improperly completed or illegible, or where the true intentions of the appointor are not ascertainable fromthe instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition,in the case of Shares entered in the Depository Register, the Company may reject any instrumentappointing a proxy or proxies lodged if the member, being the appointor, is not shown to have Sharesentered against his name in the Depository Register as at 48 hours before the time appointed for holdingthe Meeting, as certified by The Central Depository (Pte) Limited to the Company.